More On Legal & Compliancefrom The Advisor's Professional Library
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Facebook’s (FB) $19 billion purchase of WhatsApp, a messaging application used by about 450 million mobile-device owners worldwide, may not make financial sense to all observers. But, the strategic move, announced Wednesday, should be taken very seriously by financial advisors and their broker-dealers, experts say.
WhatsApp is taking on messaging titans like Twitter (TWTR), Google (GOOG) and Microsoft's (MSFT) Skype. It’s adding about 1 million users every day and is the most popular messaging app for smartphones, according to OnDevice Research.
“This is another wake-up call about how critical mobile communications is … for financial advisors,” said Stephanie Sammons, CEO and founder of Wired Advisor, in an interview with ThinkAdvisor. “It’s important that they are accessible via mobile through permissible means and are responsive, regardless of the device.”
Of course, compliance departments are rushing to embrace advisors’ use of such messaging apps.
“It’s a challenge, if you are a regulated professional and need to abide by the rules for archiving conversations,” said Jennifer Openshaw, president of Finect, a social media platform for the financial industry, in an interview.
Broker-dealers, like Raymond James (RJF), agree.
“Currently Raymond James advisors are able to chat and send messages through Facebook, because we are able to monitor and archive this activity through our Hearsay Social platform,” said Katie Berg, product manager of digital assets, in a statement. “More broad use of text and instant messaging is not currently permitted with prospects or clients for the same compliance reasons, and the ability of firms to track and archive the communications are not yet fully developed.”
However, as these tech tools grow in popularity “and clients’ expectations are raised, regulators and technologists will develop systems and policies for meeting client needs–which in this case, would be the broader ability to monitor and archive the communication,” Berg said.
Still, other experts say, Facebook’s purchase of WhatsApp is a significant communications development for advisors, for both broader professional and personal reasons. “It’s exciting in terms of the connectivity and growth. We are really seeing a switch to mobile [devices],” said Amy McIlwain, president of Financial Social Media, in an interview.
McIlwain says that she’s used WhatsApp when traveling overseas. It allows her to avoid paying $0.99 when sending a text message to someone in another country.
Advisors might want to use it when reaching out to clients on vacation or when they themselves are out of the country.
“I was at a conference two weeks ago,” she added, “and an advisor mentioned using it in Asia … to communicate with someone at his broker-dealer.” The advisor could send photos with WhatsApp, too.
“I would say you shouldn't look at WhatsApp as the next Twitter,” McIlwain explained, “but as a communication tool to use with others who use it. If you don’t respond to [a client or prospect’s] message, someone else will.”
According to Steve Garrity, founder and CTO of Hearsay Social, a Fidelity Investments' survey found that two-thirds of U.S. millionaires would like to use electronic media to communicate with their advisors, "so the time is now for advisors to meet them there."
For Openshaw, the Facebook-WhatsApp merger speaks to four trends advisors and broker-dealers can’t afford to ignore:
1. Transform or fade away.
“If you’re not on social media, you don’t exist,” she said. “And this deal underscores the need to be current, when it comes to technology and communications. Advisors who are career changers or are young know they are expected to use social media.”
2. Be fast and furious.
“You need to be current with [the latest tech] practices and keep up with the speed of technological change,” Openshaw said.
She points to a survey released last week by Finect that found 60% of financial professionals believe technology is moving as fast or faster than the markets.
“There is increasing pressure to be responsive to clients, and it is significant,” Openshaw said. “This will put more pressure on regulators.”
Plus, the faster the technological change, the more firms “have to be flexible and expect to be able to be engaging — both investor or prospective — clients in the New Tech World Order that we live in.”
3. Be ready and be adaptable.
Broker-dealers and other financial firms can’t assume that after they build a compliance process, they’re done. "It will need to be changed and updated every few months to keep pace with new innovations,” Openshaw said.
Younger generations today are much less likely to communicate over a voice-call on the phone, but may be easy to reach through other communication channels like text, email, or social media services.
4. Embrace the New World.
In the New Tech World Order, she notes, constant communication is critical in the wealth management industry, and not just between clients and advisors. It’s especially important between employees and staffers.
While Finect’s recent poll found that close to 20% of professionals believe their firms do not update compliance policies when new technology advancements are made (such as mobile apps or social media), 70% say their firms do adapt.
“It’s very positive for firms to update compliance and technology to show they are staying current and protecting investors,” said Openshaw.
Otherwise, experts say, advisors and financial firms are likely to lose business.
"With the right compliance technologies in place to enable supervision and archiving, services like WhatsApp could be a valuable way for advisors to communicate with clients. As these new technologies change the way that people communicate, advisors will need to adapt," added Garrity .
"Younger generations today are much less likely to communicate over a voice-call on the phone, but may be easy to reach through other communication channels like text, email, or social media services," he explained.