How to avoid that fatal blow to client communication

In his terrific book about how to build better and deeper financial planning relationships with clients, Michael F. Kay quotes George Bernard Shaw. It was Shaw who said, “The single biggest problem in communication is the illusion that it has taken place.” Kay, the author of The Business of Life, adds that building client trust is dependent on consistently excellent communication.

In quoting Shaw, the celebrated Irish playwright, Kay has a leg up on me. I’m much more comfortable quoting Family Guy and Steven Seagal movies. Nevertheless, from my perspective, too many investment advisers are under the illusion that they are communicating effectively and compliantly with clients.

Fatal blow to client communication

To comply with their fiduciary obligations, communications from Registered Investment Advisers (“RIAs”) to clients must be thorough, complete, and not misleading in any way. I am finding it difficult to accept that a communication using Twitter will satisfy that standard, especially since it must be 140 characters or less. It is also doubtful that clients who receive an RIA’s tweet will view the message as excellent communication.

Text messages may not fit the bill either. Clients are far more likely to remember a meaningful conversation, not a text message sent or read before the traffic light turned green.

Even e-mails should not be confused with excellent communication. Too many investment advisers don’t treat e-mails with the same care and respect as other forms of written communications. With a few misplaced words, a short e-mail might become false or misleading. As Mark Twain said, the difference between the right word and the almost right word is the difference between lightning and a lightning bug.

Kay points out that when it comes to working with clients, any disconnect between what advisers say and do can be a fatal blow in establishing trust. In my opinion, that disconnect is far more likely with e-mails and other forms of electronic communications.

Give up on social media? LOL

There is a place for tweets, text messages, and e-mails in conjunction with client communication, assuming they are carefully constructed and retained in accordance with the Books and Records Rule. An RIA must also construct comprehensive policies and procedures to make certain that client communications are not misleading. Furthermore, policies and procedures should set forth the parameters for client communication used by the firm and associated persons.

RIA compliance personnel should also use due diligence to investigate whether client communications are thorough, complete, and not misleading. They should monitor client communications to ensure that associated persons are not making guarantees or using language that promises too much.

Tweets, text messages, and e-mail may prove to be a helpful addition to traditional client communication using meetings, phone calls, newsletters, reports, updates, and educational conferences. Without that dialogue on an ongoing basis, electronic communications won’t do much to enhance the client relationship.

Don’t forget about complying with other rules

Although written communication by an RIA to existing clients is usually not an advertisement, it can meet that definition if circumstances suggest that its purpose is to offer additional advisory services or attract new clients. For example, suppose your Twitter message asks clients to tell their friends about your upcoming educational seminar or encourages them to sign up for your newsletter. At that point, the communication must comply with advertising rules and regulations. See: Social media can turn regulatory exam into fiery wreck.

You must also exercise great care if you are delivering updated brochures and brochure supplements, as well as other important documents, via e-mail. Before sending them, clients must sign an electronic delivery consent form or should agree to the use of e-mail in their advisory agreement. The mere fact that clients give you their e-mail address should not be construed as consent to delivery of important documents. RIAs should retain evidence that the intended recipient actually received the delivery, such as a return receipt or documentation that the information was accessed, downloaded, or printed.

If you aren’t careful, you might be under the illusion that your communications are compliant.

Les Abromovitz is a senior consultant with National Compliance Services, Inc. Les, an attorney, is the author of Growing Within the Lines: The Investment Adviser’s Advertising and Marketing Compliance Guide (Available on Amazon.com or through NationalUnderwriterStore.com). He can be reached at 561-330-7645, Ext. 213, or at LAbromovitz@ncsonline.com.