RIA Compliance Requirements for Electronic Client Communications

This is a guest blog post from RIA in a Box, originally seen on their blog. For more information on Smarsh and RIA in a Box, click here.

Today more than ever, our world is dependent on the internet as a premier medium of communication.  Between text messaging, emailing and various social media outlets, the internet is making the standard phone call nearly obsolete. This shift to electronic messaging within registered investment adviser (RIA) firms has created new types of compliance obligation for advisory firms.  Forms of electronic communication include, but are not limited to: emails, website pages, instant messages, social media posts, email marketing and text messages. Common investment adviser compliance issues include how to retain formality and professionalism in electronic messaging, when and where to archive client messages, and ensuring the firm is eligible to be sending important documents to clients via an electronic form of delivery.

To ensure compliance, RIA firms should generally retain all forms of communication to and from clients. It is best to have how this will be accomplished outlined in the firm’s Policies and Procedures manual. It's also important to note what types of communication will be stored and how each archived type of communication may be retrieved. During a regulatory exam, an examiner should be able to review any emails requested, either to or from particular clients.

Furthermore, each individual messages may be further investigated to ensure that the content is thorough and accurate. Language that could be considered to be false or misleading should always be avoided. For example, text and short message service (SMS) messages sent hastily at a traffic light might prove to be troublesome for a firm during a regulatory examination. It is vital that each individual investment adviser representative (IAR) ensure proper formality with all forms of electronic communication. Yes, emails and text messages are informal and a simple and convenient way to communicate. However, misplaced wording or informal language can be often be misconstrued. Language that sounds misleading or perceived to be making superficial guarantees can position the communication as being non-compliant.

Before delivering documents electronically to a particular client, the RIA firm must ensure that it is first authorized to do so. To communicate with clients over electronic messaging, clients must generally sign and execute an electronic communication delivery consent form. The form should outline what types of documents are permissible to being sent electronically. It's also important to remember that the email addresses noted on consent form are generally the only email addresses that documents are authorized to be sent to. It is the firm’s responsibility to communicate this to clients so that clients will immediately let the firm know when an email address is changed. Investment advisers should also retain evidence that the correct recipient has given consent to receive documents via email.

RIA firms should also include proper disclosures on their standard email signature addressing the dangers of using electronic communication for issues that need immediate attention. Ultimately, it's important that clients are properly informed as to when sending an email may be insufficient such as for confirming a wire request or for asking a trade to be executed. While electronic communication is an essential tool for any advisory firm, it's also vital to incorporate the proper policies and procedures that may call for a client to verbally confirm various requests.