Legal experts: 5 best practices for advisors texting clients

As financial advisors increasingly use informal communication channels such as text or social media to contact clients, legal experts have outlined best practices for avoiding liabilities and other serious issues.

With studies finding younger clients are more likely to go online for financial advisors, more advisors are being urged to go online or use informal methods to connect with a younger target market.

“This is how the world is communicating now,” Andrew Evans, CEO & founder of Florida-based Rossby Financial, said. “Email is essentially dying out. People even don’t really want to have a phone call anymore, and I think advisors are trying to keep pace with the rest of the world. But our systems and our regulations that we have in place aren’t keeping up with the pace of the world and where it is.”

Evans and other experts InsuranceNewsNet spoke with recommended five basic best practices financial advisors should follow when using this method of communication:

1. Check the firm’s policies
2. Comply with national and state laws
3. Never use personal accounts
4. Exercise good judgment
5. Consider AI

Check communication policies

Experts encourage financial advisors to first and foremost comply with their firm’s client communications policies no matter what channel they use.

“The number one best practice [is to] go back and look at your firm’s social media and client communication policies and procedures,” Evans said. “Start there. It’s directly in your compliance document. Everybody has one; just read it.”

For instance, he noted that some firms have a social media attestation forbidding advisors from directly messaging clients online through popular platforms such as TikTok, Snapchat or Whatsapp because they cannot monitor its usage.

While this can be frustrating for advisors, Evans said they nonetheless need to be fully aware of whether or not their firm allows such communication.

Comply with laws

On a larger scale, Ben Michael, attorney, Michael & Associates, reminded advisors to comply with existing communication and privacy laws, such as obtaining client consent before texting them.

“There are laws in place regarding texting clients on the national and state level, so if advisors fail to understand what those laws are and break them, that can be a major compliance issue that the advisor or company becomes liable for,” he said.

Patti Yencho, a Florida-based insurance advisor of more than 25 years, added that firms should train advisors to ensure compliance.

“We coach advisors to be extremely cautious, as informal means lack safeguards and what’s said can go on record as advice,” she said. “Policies, procedures and training help ensure professionalism… To ensure compliance, document all communications, obtain written consent for digital contact and confirm understanding. Audit to verify guidelines are followed.”

Never use personal accounts or devices

Advisors who want to use text or social media to connect with clients should start by creating a business profile, as using personal accounts or devices should always be out of the question for this, Evans said.

“If you’re specifically texting an actual, full-fledged client about information specific to their portfolio, if it’s not being surveilled and archived, you cannot be doing that. That is a direct violation,” he said.

He explained that this can lead to privacy issues for both parties, as there are “high chances” that a regulator or other official may confiscate an advisor’s device if a rule is violated.

“There might be things on that [device] that you just don’t want them to know, or that might be your primary place to talk to friends, track your own banking information. It could be your multi-factor authentication tool that you’re about to lose. So, there’s many reasons why just don’t do it,” he said.

Use good judgment

Experts also suggested advisors exercise discretion and judgment, such as knowing what kind of communication would be better taken offline.

“Sensitive issues warrant in-person discussion to avoid confusion or risk,” Yencho said. “A single ambiguous message could damage client trust or prompt legal issues. My rule: if it requires complexity, do it face-to-face.”

In Yencho’s experience, severe issues can arise due to miscommunication from informal communication, which can lack necessary context and nuance if not done correctly and without appropriate follow-up through written records.

Consider AI

The increasing use of artificial intelligence for automated responses could also help with some of these concerns. Large platforms like Slack are rolling out auto-responders, equipping advisors with AI bots capable of answering simple questions through informal channels in a compliant, monitored way.

“A lot of that has to do with getting the firm to allow it, and then the ability to train what it’s saying, protecting what data it’s allowed to talk about,” Evans noted. “But I see that being a really, really large help in the future with the ability to communicate with clients.”

Rossby Financial, founded in 2023, is an independent national RIA offering financial products and services.

 

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