Practice Management

About Finra's social-media update

Advisory firms now have more guidance on record keeping and supervision

Oct 2, 2011 @ 12:01 am

Compliance is the big reason that most financial advisers are merely dipping their toes into the social-media waters. Simply put, they aren't sure what is permissible and what isn't.

From the first days of LinkedIn, Facebook and Twitter, broker-dealers and registered representatives have wondered how social media could be incorporated compliantly into marketing strategies.

To help answer these questions, the Financial Industry Regulatory Authority Inc. issued Regulatory Notice 10-06 in January 2010.

Although it laid the groundwork, the notice did little to provide specific guidance. In fact, since it created more questions than it answered, Finra recently issued Regulatory Notice 11-39 in an effort to respond to some remaining questions and help firms better apply the rules.

Here are a handful of key points from the new notice and my thoughts on how to apply each:

Record keeping. If social-media content constitutes a “business communication,” Finra requires that it be retained “for a period of not less than three years, the first two in an easily accessible place.”

The requirement means that firms must have a system in place for archiving.

Supervision. Finra reiterated that firms must establish and maintain a system to supervise all social-media activities. The latest notice took things a few steps further by specifying that registered principals review an associated person's social-media site prior to its launch and determine that an associated person is complying with all applicable laws and any additional firm requirements.

Finra noted that participation in interactive electronic forums falls under the definition of “public appearance” and therefore doesn't require prior approval. Firms can use post-use review for these. On the other hand, static postings are deemed “advertisements” and therefore require prior approval by a registered principal. Further, firms must conduct training and education concerning their social-media policies.

My advice about dealing with these supervision requirements is that prior to allowing reps to use social media, firms establish very clear policies on what is allowed and what isn't, and then do a ton of well-documented training around it. Don't go overboard with the rules, but establish policies that protect consumers yet still allow advisers to brand themselves and serve as a resource to clients and prospects.

Third-party posts, links and websites. In terms of content posted by others, Finra has taken the stance that a firm can't be responsible for third-party posts. It does, however, caution firms about becoming “entangled” with content from third-party websites.

My advice is to be careful. Don't link to a site without thoroughly investigating it. And when it comes to business communications via social-media sites, the best policy is to advise reps to continue those conversations through the firm's e-mail system or through face-to-face communication.

Personal devices. Finra permits reps to use smart phones and tablets if firms are able to “retain, retrieve and supervise business communications” from whatever device is used.

Regarding these devices, I would say to use them; they are the easiest and most timely way to communicate with clients and prospects.

Although the Finra update an-swered some questions, there are plenty more.

For example, what, if any, disclosure language must be included on social-media profiles? Hands down, this is the question we hear most often from firms to which we provide consultation.

Second, what constitutes an “endorsement”?

Is a “like” on Facebook an en-dorsement?

What about a comment left on a blog?

How about LinkedIn recommendations?

There is a lot of uncertainly surrounding anything that sounds like an endorsement, and this causes advisers to avoid many of these tools altogether.

Clearly, social media is a work in progress. But it isn't going away.

As for compliance concerns, start by implementing whichever components your firm allows, and grow from there. Starting small is better than not having a social-media presence at all.

Challenge your firm to let you do more — within Finra guidelines, of course. The rules will become clearer as Finra and firms map out how best to protect the interests of clients and prospects.

Until then, do what you can.

Kristin Andree (kristin@ andreemedia.com) is president of Andree Media & Consulting.

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