This article is part of a series of special reports appearing in the Sept. 14, 2020, edition of InvestmentNews.
The new normal work environment created by COVID-19, with tens of thousands of advisers now at home instead of in the office, means that broker-dealers should be tightening up their supervision of how advisers communicate with their clients, particularly with emerging technology like videoconferencing.
While advisers’ face-to-face meetings are out, speaking to clients via tech platforms like Zoom or texting using personal mobile phones is in. The Financial Industry Regulatory Authority Inc., the industry’s self-regulatory organization, has myriad rules firms must follow to track how advisers communicate with clients, but the pandemic potentially creates new cracks in that supervision.
“Every change in technology that gives you another way to communicate is a challenge for the regulators and the brokerage industry, but it’s 20 times harder when everyone is not at a central location and working in the office,” said Brad Bennett, a former director of Finra enforcement and now an industry consultant. “In the old days, the branch manager would simply walk around the office and listen to the reps’ phone calls and monitor the mail.”
“If the adviser is having Zoom meeting with clients, the firm has to do surveillance,” Bennett said. “That platform is like the phone but it’s really difficult to surveil advisers on the phone.”
Firms are mulling changes and looking for new tools to tighten their supervision of communications.
“As new needs emerge, we seek out fintech providers who can or are looking to fill gaps -- especially regarding compliance tools,” wrote Cindy Schaus, a spokesperson for Cambridge Investment Research Inc., a large independent broker-dealer. “We continue to explore options for compliant use of virtual meetings that include chat features but before release need to ensure we will be able to maintain proper books and records.”
Finra is certainly paying attention, particularly to the notion that reps and advisers are using online platforms to chat with clients. In a May notice, Finra underscored the point that advisers or traders must use “only firm-provided and approved communication systems and tools, such as firm email, messaging platforms and softphones with recording capabilities.”
When it came to restrictions on communicating with clients, Finra said that during the work-from-home lockdown, certain broker-dealers had made “extra efforts” in supervising reps and advisers.
Regarding videoconferencing with clients, some broker-dealers “disabled certain features and functionalities of video conferencing platforms, such as chat, that would be subject to recordkeeping obligations that the firms could not fulfill in the remote work environment,” according to the Finra notice. That refers to chat functionality within Zoom or other videoconferencing platforms, which presumably firms would not be able to capture for record-keeping purposes.
Broker-dealers can take several steps to avoid those cracks in supervising rep and adviser communication.
“Don’t get lazy and relax because we’re in this new normal,” said Emily Gordy, a former Finra enforcement official who’s now a partner at McGuireWoods. “Branch managers should have more frequent calls with financial advisers, perhaps should also have more frequent check-ins with reps and advisers to discuss day-to-day operations.”
“Most firms have surveillance systems on email, and they should ramp that up and make sure it’s complying with regulatory procedures and requirements,” she added. “Are advisers complying when it comes to phone calls and video chats? People need to be creative and alert in this period.”
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