To keep his advisory firm on an innovative track, Ross Gerber constantly prowls for new management ideas. So the CEO of Santa Monica, California-based Gerber Kawasaki Wealth and Investment Management was intrigued when he learned last year about Bridgewater Associates’ comprehensive approach to archiving intra-office communications.
“They have an unbelievable track record,” Gerber says of Bridgewater, the world’s largest hedge fund, headquartered in Westport, Connecticut.
Gerber’s accolades are in reference to Bridgewater’s historically high returns. But Bridgewater’s management has also separated itself from the pack by recording and archiving all intra-office conversations, in an effort to achieve what founder Ray Dalio has described as “radical transparency.”
And that distinction has earned doubts expressed by Gerber, and plenty of others, about Bridgewater’s approach.
A DISASTROUS ATTEMPT
Gerber initially believed that adopting Bridgewater’s radical transparency strategy might work at his firm. However, when he attempted a version of the strategy, the experiment ended in a disaster that included employee crying jags, hurt feelings and halted productivity.
There are private moments in any office — including personal conversations, gripes about bosses and political discourse — that simply do not need to be recorded, Gerber realized.
He now seeks only “tiers of transparency.” This means he gives employees the freedom to complain to each other around the watercooler, and encourages frankness among managers up to a point — but he does not archive all communications.
“I don’t want to tell all my partners what I think all the time,” he says.
At Bridgewater, which in March underwent a management shakeup, the archived tape recordings have also caused problems. Last year, a former employee alleged, in a sexual harassment complaint against the firm, that its policy of recording meetings and surveillance culture had led him to delay reporting the harassment. He was concerned the matter would not stay private, he said.
TO ARCHIVE OR NOT TO ARCHIVE
Should firms archive all emails, texts, Twitter messages and digital chatting communication tools, along with every other electronic communication method?
Regulators have enforced
Ray Pellecchia, a FINRA spokesman, points to a 2007 regulatory notice: “FINRA appreciates the supervisory challenges firms face given the ever-increasing pace of change in electronic communications technology. However, as FINRA noted in the context of addressing the supervision and recordkeeping requirements for text messaging, a member firm’s obligations to supervise electronic communications are based on the content and audience of the message, rather than the electronic form of guidance.”
Many of the voices suggesting that regulators will become even more expansive in ensuring advisers track all intra-office communications are those of marketers selling products to capture and archive such communications.
The bulk of the haul came from the bankrupt crypto company Terraform Labs. But Morgan Stanley, LPL Financial, Ameriprise and other big firms also came under scrutiny.
FINRA must let the SEC weigh in before it can cast out one of its members, a three-judge panel of the U.S. Court of Appeals for the District of Columbia found.
Experts say firms that seek to serve technology-savvy clients would do well to provide the digital tools they desire.
Mike Pagani, senior director for product marketing and chief evangelist for Portland-based Smarsh, is one of those who cheers on the ever more sophisticated options for capturing and archiving intra-office communications.
“If you just relied on email alone, you would have no context of the conversation,” Pagani says.
Pagani’s company delivers archiving applications through a platform that captures communications across the entire range of digital channels. Recently, Smarsh joined with San Francisco-area-based Slack to offer an additional product that allows for unlimited cloud-based workspaces, as well as automatic recording and archiving.
‘EVER EXPANDING COMMUNICATIONS SPECTRUM’
There is an “ever-expanding communications spectrum,” Pagani says, and the Smarsh and Slack joint venture will help advisory firms capture all.
Although the SEC and FINRA require retention of electronic communications related to business transactions, advisory firms have historically told agency auditors they have no knowledge of such when asked about texts or other informal messaging related to their business, Pagani says.
“’Not to our knowledge’ was the get-out-jail card,” when regulators pressed advisers about less-formal digital communications, Pagani says.
But as the regulators accept fewer excuses, advisory firms’ management should recognize that accessible archives of digital communications have fringe benefits, too, Pagani says. It often means auditors spend hours rather than days when looking for such documentation, and less time disrupting the flow of daily business.
THE LITIGATION ANGLE
From a litigation standpoint, such archiving of all intra-office communications also offers pluses. Any employee or client may maintain a record of any communication at any time, simply by taking a screenshot of a text, or recording a phone call. If or when an adviser becomes a legal opponent, they could unveil such a recording to bolster their own case.
From a litigation standpoint, such archiving of all intra-office communications also offers pluses.
“You’re at a disadvantage if you don’t know what’s been said,” says Pagani.
But, again, not all advisers have jumped on the archiving bandwagon.
No thanks, says Marie A. Moore, a Morgan Stanley managing director in Dallas. “I would find it a little strange to have someone recording every word someone said all the time. If you weren’t paranoid, it might make you feel that way,” she says.
Talis Advisors in Plano, Texas, limits capturing to its CRM tools, which allow team members to view all client conversations and notes. “They each have the ability to go into that client’s contact and see the latest notes and email exchange,” says Bob Lamse, the president of Talis.
For his part, Gerber now discourages his employees from bantering on email, because his firm’s systems capture and archive all those messages. But his firm does not capture and archive texted and Slack conversations.
“I make sure some communications aren’t documented,” he says.
