GO BACK TO BLOG
January 17, 2024
How Do You Communicate With Clients?

The financial industry is one of the most highly regulated in the world.  How we interact with our clients is regulated at several levels and must be retained for books and records.  You may have recently seen the enforcement action against Senvest Management, LLC for their failure to capture text messages with clients.  Even if you are a one-man shop, retention of texts is regulated by the SEC.  Additionally, texting with your assistant or other employees could also fall into purview.  

Advisers Act Rule 204-2 (“Books and Records Rule”) requires advisers to make and keep certain books and records relating to their investment advisory business, including typical accounting  and other business records as required by the Commission. For example, Rule 204-2(a)(7)  requires advisers to make and keep “[o]riginals of all written communications received and copies of all written communications sent by such investment adviser relating to (i) any  recommendation made or proposed to be made and any advice given or proposed to be given, (ii) any receipt, disbursement or delivery of funds or securities, (iii) the placing or execution of any order to purchase or sell any security, or (iv) the performance or rate of return of any or all  managed accounts or securities recommendations,” subject to certain limited exceptions.

So where do text messages fall into this rule? Rule 204-2 is a bit more specific, requiring preservation of an investment advisor’s communications relating to “advice given or proposed,” “receipt, disbursement, or delivery of funds or securities,” the “placing or execution of any order to purchase or sell” or “predecessor performance.”

As an RIA, you need to decide how you wish to communicate with your clients and how you have that documented in your policies and procedures.  If you wish to text, you must retain for seven years so how do you accomplish that? Also, cybersecurity considerations must be at the forefront of your decision making as well given the subject matter you are texting.

How quickly can you update your policies to reflect changes in business strategy or changes in rule application when you see enforcement actions brought against others? How do you become aware of enforcement actions?

Avery by RegVerse uses responsible artificial intelligence (AI) to review, analyze, and breakdown regulations into tasks that are manageable.  Rule 204-2 has 24 items listed that must be retained – how confident are you annually you have captured all records? Let Avery help you automate your compliance workflow.

Contact RegVerse for a demo today!

Resources used:

ia-6581.pdf (sec.gov)

SEC.gov | SEC Charges Advisory Firm Senvest Management with Recordkeeping and Other Failures

OCIE Risk Alert - Electronic Messaging.pdf (sec.gov)

Key Terms: Text messages, Texting, Books and records, 204-2, Rule 204, IAR, Senvest, Fines, Enforcement, Sec, Communications, Client communication, Recordkeeping, Policies, Compliance

RegVerse Team