If you’re a robo-adviser, chances are you want to create a fully “digital” experience for clients that doesn’t involve sending paper documents. For example, you may want to email clients or communicate with them directly through your firm’s online platform. If you’re going to ditch the paper, the SEC expects you to follow its guidance on the use of electronic media before doing so.

That guidance is found in a series of SEC releases published in 1995, 1996 and 2000. The 1996 release, in particular, discusses how advisers may use electronic means to meet their legal obligations to deliver information to clients, such as Form ADV Part 2A (the firm brochure). In short, the SEC expects advisers to meet three requirements: notice, access, and informed client consent. Here’s what they mean by that.

Notice. Firms should consider the extent to which the proposed means of electronic communication provides timely and adequate notice to clients that information is available. The SEC reasoned that because delivery of paper documents puts the recipient on notice that new information is available, the chosen means of electronic communication should do the same. So, for example, posting a document on a website would not, by itself, be sufficient to meet the notice requirement. By contrast, it would be sufficient to (i) email the document directly to clients or (ii) post the document and send clients an email notifying them that the document is available and providing a URL for accessing the document.

Access. The use of a particular medium should not be so burdensome that intended recipients cannot effectively access the information provided. For example, a URL provided in an email notice of information availability should directly link users to the intended document. It should not link users to a generic webpage where users must continue to search to find the document. In addition, a client’s access to information delivered electronically should be similar to their experience with documents delivered in paper form. This means that they should be able to retain the information delivered (like the ability to print or download) or otherwise have ongoing access to the information.

Informed Consent. Before you send your first e-communication, be sure to get your client’s “informed” consent to electronic delivery. Generally, consent is informed when it is obtained after a client is told that:

  • the document to be provided will be available through a specific electronic medium and that medium is described;
  • there may be costs associated with the delivery;
  • the duration and scope of the consent (i.e. whether the scope is indefinite and whether the consent applies to more than one document); and
  • the client has the right to revoke consent at any time and receive all covered documents in paper format.

For robo-adviser firms who want to communicate electronically with clients, we recommend, as a best practice, obtaining the client’s informed consent as part of the onboarding process. For example, you may choose to have clients provide their consent in a pop-up window that appears before or after clients execute your advisory contract. And as you’ll recall from a previous post, obtaining the consent separately is preferable to burying the consent in a contract.

So, do advisers have to get informed consent before sending electronic communications? Technically, no. The SEC did provide an alternative – advisers need not get a client’s consent if they can obtain evidence that a client actually received the information, for example, by electronic mail return-receipt or confirmation of accessing, downloading, or printing. But this alternative has a downside that usually makes informed consent the better option. If advisers seek to rely on this method, they must revert to paper delivery for any client for which they cannot document receipt.

Thanks for reading! We hope you’ll come back for our next post by Josh Hinderliter, who will offer guidance for using paid solicitors to help you attract clients.