The SEC announced on Friday that these firms have acknowledged the accuracy of the SEC's findings, admitted to violating record-keeping rules, and have begun enhancing their compliance measures.

The SEC's scrutiny has been particularly focused on broker-dealers and registered investment advisors' management of electronic communications, including emails and texts. The agency has imposed significant penalties on firms that fail to use approved channels for these communications, emphasizing the importance of monitoring for unauthorized app usage among employees.

Sander Ressler, managing director of Essential Edge Compliance Outsourcing Services, commented on the issue, noting that clearer regulatory guidance in the past could have prevented these issues. He highlighted the challenges in distinguishing between personal and professional communications, especially with the use of text messages, which can easily blend personal and business discussions.

The SEC's investigation revealed widespread use of unapproved communication methods, or off-channel communications, across all 16 implicated firms. These unauthorized practices, which involved personal texting about business matters, have been ongoing since at least 2019 or 2020. The firms failed to maintain records of these communications, breaching federal securities laws.

As part of their settlements, the firms have agreed to pay fines ranging from $1.25 million to $16.5 million. Cambridge Investment Research Inc., for instance, has agreed to a $10 million fine and will hire an independent consultant to review its communication practices. Northwestern Mutual Investment Services and its affiliates will pay the highest penalty of $16.5 million, while penalties for other firms like Guggenheim Securities and Oppenheimer & Co. Inc. also reached significant amounts.

Osaic Inc., which is in the process of acquiring Lincoln Financial Advisors, has not commented on the settlement. The resolution of these charges marks a significant step in the SEC's efforts to ensure compliance with electronic communication regulations within the financial advice industry.

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The Advisor's Edge Team