Why advisors can’t ignore text messaging

Text messaging can offer opportunities for advisors, like quick and efficient communication with clients, but also comes with significant risks. Unauthorized texting can be an expensive violation from regulators, meaning firms are rightfully hesitant.

FINRA enforcement actions in 2017, for example, indicated the emergence of a new trend of disciplinary measures and fines against financial advisors who communicate with their clients via unauthorized text messages. Specifically, if a firm “intends to communicate, or permit its associated persons to communicate, with regard to its business” through text messaging, then that firm “must first ensure that it can retain records of those communications as required by SEC Rules 17a-3 and 17a-4 and FINRA Rule 4511.”

If you do not fully understand the complexities of the FINRA rule — you’re not alone. In an explanation of Regulatory Notice 17-18, the wording "intends to communicate" has a somewhat ambiguous meaning, according to experts. Consequently, advisors who text need to set up the requisite compliance tools for supervision and record-keeping.

There’s more. “The difference between what makes something a personal communication versus a business communication,” is another point of contention. Under FINRA rules, are all topics communicated between advisor and client considered to be business communication? A firm that intends on communicating with clients via text messaging would need to put in place policies and technology that are capable of distinguishing what is a business communication and what is personal communication, which could be exceedingly difficult, not to mention, costly.

The good news is that while the previous rule disallowed all text messaging, FINRA now allows some use of texting with certain compliance tools, company policies and supervisory infrastructure in place.

There’s also a significant competitive advantage for doing so. In 2017, more than 8 trillion texts were sent, according to TextRequest. Ninety-eight percent of text messages are read in less than two minutes, and almost all are read within 24 hours, according to Pew Research. In contrast, the read-rate of email is approximately 20%, and only 14% of phone calls to businesses are answered without being placed on hold. That means clients can reach out to you easily, and conversely that there’s a direct line to your clients.

If an advisor is considering a move to texts, there are four main considerations: cost, technology savviness, liability, and a recognition of the marketing importance of providing such a service. Many firms aren’t even aware the technology exists. Those that are, then have to weigh the benefits of the added costs associated with making it available against the liability and added responsibilities to the firm’s compliance team.

While the road to a texting culture may seem arduous, the advantages go beyond simple communications. Financial advisors who want to keep up with how people communicate should reconsider the benefits and risks regarding text message communication with clients.

Tech-savvy clients are demanding the quickness and the efficiency that texting communication facilitates. Consequently, advisors will have to meet their clients where they want to be greeted.