BE WARNED: FINRA'S RECENT capitulation over proposed reporting requirements for social-media postings shouldn't be interpreted as a sign that the self-regulator is throwing open the social-networking floodgates for broker-dealers and their representatives.
In an update to a package of proposed communications rules filed last month with the Securities and Exchange Commission, the
Financial Industry Regulatory Authority Inc. disclosed that it would exclude messages on Facebook, LinkedIn, Twitter and other social-media forums from its post-use filing requirement.
“Finra recognizes that a member may face supervisory and operational difficulties if it is required to file an online forum post, given that the member will be supervising such communications in the same manner as correspondence,” wrote Joseph P. Savage, vice president and counsel of investment companies regulation at Finra.
The move by Finra is a welcome sign that the self-regulator — often criticized for being rigid and slow to adapt — is willing to modify its rules and regulations to make it easier for registered reps to use social media to interact with existing clients and prospect for new ones.
But it doesn't release advisers from their responsibility to ensure that appropriate content and record-keeping standards are upheld with regard to social-media posts. Nor does it let them off the hook for archiving those messages.
In fact, Mr. Savage's letter to the SEC contained one important caveat that shouldn't be overlooked: “Members should be aware that this exemption does not apply to any filing requirement that may arise under either federal law or SEC rules.”
In other words, the content of the message is more important than the medium by which it is delivered.
For better or worse, social media is a game changer for the financial advice business. The days of advisers' blasting out lengthy missives about the state of the economy or the stock market in the name of “client engagement” are coming to an end.
Thanks to Facebook, LinkedIn, Twitter, YouTube and myriad other social-networking sites, clients now expect — and often demand — timely two-way communication with their advisers.
Social media also is reshaping clients' expectations for advisory firms' websites. Firms that continue to maintain websites that are simply static repositories for content, such as biographical information or white papers, soon will find themselves out of sync with firms whose websites serve as virtual communities in which users interact with one another and are responsible for posting content.
In the name of investor protection, regulators can — and should — continue to keep a close eye on how financial services companies use social media.
And thankfully, that is just what they are doing.
Two weeks after disclosing plans to update its communications rules, the SEC — Finra's boss — issued an alert highlighting the risks that registered investment advisers face when using social media. Although many firms have policies and procedures that apply to the use of social media, those policies and procedures tend to vary from firm to firm, according to the alert.
Also, many firms have multiple overlapping procedures that apply to advertisements and client communications, and may or may not include social media.
“Such lack of specificity may cause confusion as to what procedures or standards apply to social- media use,” the alert said.
It is hardly a coincidence that the SEC issued its alert in conjunction with a cease-and-desist order against an Illinois-based investment adviser charged with offering to sell fictitious securities on LinkedIn.
Broker-dealers and investment advisers should jump on the social-media bandwagon. Before they do, however, it is imperative that they put in place sensible policies and procedures to govern their use of the forum.
They also must take great care to train their advisers to follow those guidelines and have the tools needed to monitor their advisers' use of social media.
