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Email review: 5 best practices for advisors

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Financial advisors know that they must comply with SEC requirements to archive all email sent to and from their firm’s employees, but knowing what to look for when reviewing email may not be as clear.

“As fiduciaries, it is critical that advisors implement strong procedures to supervise email communications, including those between advisors and their clients,” says Paul Tolley, chief compliance officer at Commonwealth Financial Network, an independent broker-dealer in Waltham, Mass.

Here are five tips on how to handle common email problems:

1. Undisclosed client complaints. Complaints and concerns received from clients should be reviewed by a supervisor so that someone other than the recipient of the correspondence is in a position to effectively act on the information, says Nancy Lininger, the founder and president of The Consortium, a compliance consulting firm based in Camarillo, Calif.

“There is a line, albeit blurry, when a client inquires, ‘Why are the stocks in the portfolio down?’ versus, ‘I’m concerned the portfolio is not doing well,’” she says. “It’s best to address ‘concerns’ before they get to the ‘angry’ stage.”

2. Promissory claims or “guarantor” (meaning guaranteed) performance language. Overstating performance history or inappropriately forecasting future returns in emails, particularly during audit exams, are “perennial hot-button issues with the SEC,” says Chris Stanley, general counsel and chief compliance officer at Loring Ward, a consulting firm in San Jose, Calif., that provides solutions to advisor problems.

An example: “This investment will return X percentage because it has done so in the past.”
As a precaution, Stanley recommends that advisors cite “pre-approved marketing material or thoroughly vetted calculations” in their emails.

3. Suspicious emails from clients who may have had their email hacked. “An advisor’s cybersecurity infrastructure is only as strong as its weakest link, and it’s not uncommon for the weakest link to be a client whose email has been compromised,” Stanley says. “Out-of-character distribution requests to third parties should be particularly scrutinized if requested via email, as criminals have become very adept at impersonating clients.”

4. Questionable statements in emails. Chris Cook, president of Dayton, Ohio-based Beacon Capital Management, recommends that advisors use a monitoring service, such as Smarsh, that automatically captures every email.

The technology scans all emails using keywords and phrases and flags questionable statements, Cook says.
Any email flagged is blocked temporarily and sent to a designated compliance officer for review to determine what, if any, further action is needed.

5. Failure to place the client’s best interests first or other fiduciary failings. There should be a system of supervision of advisors’ emails designed to adequately identify advice or conflicts of interest that may not be in the clients’ best interest, Tolley says.

Adds Stanley: “At the end of the day, every investment representative has a fiduciary duty to act in the best interests of clients, and email exchanges suggesting otherwise could prove to be the first layer of an onion waiting to be peeled back.”

Email communications are a crucial element in an advisor’s books and records and should not only meet regulatory requirements but allow for effective oversight of the firm and its employees.

Bruce W. Fraser is a New York financial writer and contributor to Financial Planning magazine. He can be contacted at brucewfraser@gmail.com.

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