ADVISERS AND BROKERS MUST KEEP WRITTEN RECORDS OF COMMUNICATIONS WITH RETAIL CUSTOMERS, EVEN COMMUNICATIONS SENT VIA PERSONAL DEVICES

Picture yourself CCO (Chief Compliance Officer) of ABC Advisory Firm. One of your I.A. representatives makes use of her personal smart phone to stay in contact with clients by texting, as she finds it easier to communicate in writing on her personal phone when she is out of the office. Does the SEC's Rule on Keeping Written Records of Client Communications include such electronic written messages or SMS if they are sent via personal computers, cell phones, et al?

The answer is emphatically yes! The Record Keeping Rule applies, even though the rep or registered associate uses his or her own electronic device or smart phone to send the written communication or message.

The SEC recently brought charges against Scotia Capital and HBSC for widespread record-keeping failures, attributed to permitting associates to send written communications via their personal devices. (See SEC Press Release 2023-91.) Here's what the SEC said in this case:

"The SEC’s investigation of HSBC Securities and Scotia Capital, both registered broker dealers, uncovered pervasive and longstanding use of off-channel communications at both firms. As described in the SEC’s orders, the firms admitted that their employees often communicated “off-channel” about securities business matters on their personal devices, using messaging platforms, such as WhatsApp. Neither firm maintained or preserved the substantial majority of these communications, in violation of the federal securities laws. The failings involved employees at multiple levels of authority, including supervisors and senior executives. Both HSBC Securities and Scotia Capital cooperated with the SEC’s investigation by, among other things, self-reporting the recordkeeping failures after gathering communications from the personal devices of a sample of the firms’ personnel."

NASAA Series 66 Test Specifications include Record Keeping of Correspondence and Advertising in Section IV(G)(5), whether published on social media, email, or via websites. Bob Eder discusses the Record-Keeping Rule in his Study for the Series 66 Exam. Here's a sample of Bob Eder's treatment:

Keep Records                                                                                                 IV(G)(5)

The SEC and the various states require that broker/dealers and investment advisers keep proper records, including those of accounts, correspondence, trade confirmations, order memoranda, discretionary authority received from clients, and most everything else. Records may be kept in electronic form provided that they are easily accessible.

Here is the link to NASAA's Test Specifications for the Series 66 Exam. See the references to the SEC's Rule on Keeping Written Records of Client Communications in NASAA's Series 66 Test Specifications, Section IV(G)(5).

Study for the Series 66 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's book on Amazon.

For questions about Bob Eder's Series 66 manual, Study for the Series 66 Exam, or questions in general about the Series 66 Exam, or about the SEC's Rule on Keeping Written Records of Client Communications, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. See Bob Eder's Author Page on Amazon.com.