Leading independent broker-dealers Cambridge Investment Research Inc. Northwestern Mutual Investment Services and Lincoln Financial Advisors Corp. were among 16 wealth management firms that agreed to pay $81 million collectively to settle charges related to the Securities and Exchange Commission's ongoing investigation of how the financial advice industry at times mishandles electronic communications, including personal texting, among employees and financial advisors.
According to a statement Friday by the SEC, the firms admitted the facts set forth by the SEC orders, acknowledged that their conduct violated record-keeping provisions, and have started to implement improvements in their compliance.
Broker-dealers and registered investment advisors are highly regulated businesses when it comes to electronic communications like emails and text messages. The SEC has been heavily penalizing firms whose financial advisors or other employees go around or circumvent company-approved channels of sending messages. Regulators are particularly focused on firms' failure to monitor employees using unauthorized messaging apps.
"These text messaging issues at broker-dealers and RIAs could have been avoided with some regulatory guidance several years ago," said Sander Ressler, managing director of Essential Edge Compliance Outsourcing Services. "Texting isn't a recent occurrence. Firms, financial advisors and employees have been using text messages, especially with foreign or overseas clients, and it was a form of communication that wasn't captured.
"There's also a tremendous amount of grey area when it comes to text messaging," Ressler said. "Say a financial advisor sends a message to his brother-in-law about the barbecue for the weekend, and the brother-in-law responds in a text about the price of Google shares. That's an overlap of the personal and the professional."
"The SEC’s investigations uncovered pervasive and longstanding uses of unapproved communication methods, known as off-channel communications, at all 16 firms," according to the commission's statement Friday. "The broker-dealer firms admitted that, from at least 2019 or 2020, employees communicated through personal text messages about the business of their employers."
"The investment advisor firms admitted that their employees sent and received off-channel communications related to recommendations made or proposed to be made and advice given or proposed to be given," according to the SEC. "The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws."
“As part of the informal resolution, Cambridge agreed to pay a fine of $10 million and engage the services of an independent consultant to review the firm’s practices related to business communications,” a Cambridge spokesperson wrote in an email. “The settlement agreement is like those entered into between the SEC and over 40 other firms.”
A spokesperson for Osaic Inc., which said in December it was buying Lincoln Financial Advisors, declined to comment.
The various firms settled the matter with the SEC with penalties that ranged from $1.25 million to $16.5 million.
Northwestern Mutual Investment Services and two related firms agreed to pay a $16.5 million penalty; Guggenheim Securities and one related firm agreed to pay a $15 million penalty.
Oppenheimer & Co. Inc. agreed to $12 million in penalties, while Cambridge Investment Research Inc. and another related firm agreed to a $10 million penalty.
Key Investment Services and a related firm agreed to pay a $10 million penalty, while Lincoln Financial Advisors Corp. and another Lincoln firm settled for $8.5 million. U.S. Bancorp Investments Inc. signed off on an $8 million penalty.
Finally,, the Huntington Investment Co. and two related firms, which self-reported, agreed to pay a $1.25 million penalty.
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