A version of this article first published as
Investment Firms Allowed to Use Social Media Under SEC/FINRA Rules
Eighteen months ago a game launching bird heads at pig heads didn’t exist.
Eighteen months ago Tony Hayward was a star as CEO of BP.
Eighteen months ago most people thought Charlie Sheen was an actor.
Eighteen months ago most investment firms thought that financial advisors were prohibited from using Social Media in business.
Now Angry Birds is near world domination, now Tony Hayward is a footnote in public relations infamy, now we know Charlie Sheen is Charlie Harper…the possessed version of him, and now Social Media is not taboo in the investment business.
…in the world of investing, the Social Media ‘evolution’ has had to meet the compliance issues of the regulatory agencies meant to protect the investor from unethical advisors…
The world is evolving faster than most people can absorb, so it’s not surprising that some industries are adapting to new technologies faster than others, but in the world of investing, the Social Media ‘evolution’ has had to meet the compliance issues of the regulatory agencies meant to protect the investor from unethical advisors.
Social Media tools like blogs and Internet-based social networking tools have opened up a new environment for business by allowing a rapid-response connection between the customer and the seller of a product or service. In most Internet commerce it is a caveat emptor (let the buyer beware) situation, where the buyer must pursue legal remedies for a broken contract or unethical representation of a product or service after the fact. In investment advising the company or firm is expected to protect the buyer before, during, and after the fact, which requires the firm to intercede and supervise interactions that involve investment advice. That has led many firms to prohibit all Social Media involvement by its representatives.
However, seventeen months ago the largest independent financial regulator stepped forward with a road map for investment firms on how Social Media could be used by their representatives while meeting the need to protect the investor.
…the regulations only effect business communications that involve investment advising and promotion. Personal blogs, Twitter, Facebook, and other Social Media tools are not a concern for the regulators…
Joseph Price, Senior Vice President of Advertising Regulation/Corporate Financing at FINRA (Financial Industry Financial Authority) discussed the issues with investment firms and Social Media with me earlier today. Price is one of the authors of Regulatory Notice 10-06 titled Social Media Web Sites – Guidance on Blogs and Social Networking Web Sites that was published in January 2010. Price said that using Social Media, “..depends on the firm’s business model,” and that it, “..has to make sense for the firm.” He confirmed that the regulations only effect business communications that involve investment advising and promotion. Personal blogs, Twitter, Facebook, and other Social Media tools are not a concern for the regulators even though individual firms may have policies prohibiting personal on-line interactions.
Price said that a common question he hears from firms is from those who prohibit all Social Media involvement by their representatives. Their concern is whether a firm is meeting the regulatory requirements when they have no Social Media supervisory functions in place because they have prohibited the activity.
Another question that FINRA has had to deal with involves deleting inappropriate user comments in chat rooms and on blogs. Price asked, “..by selective deletion, has the firm adopted the posts they haven’t deleted?” His suggestion to firms is that they have a policy in place that outlines the approval/deletion of comments. As long as a firm follows the policy and doesn’t prejudice the comments to favor the firm and its products, the company will likely not be considered to have approved and adopted the user comment.
Regarding investment business blogs, Price explained that they “require prior approval” by a firm before they are published because they fall into the category of a static communication that includes any form of advertising.
The Regulatory Notice 10-06 answers ten questions for firms about guidelines for using Social Media in the industry of investment advising. FINRA has followed up that document with webinars, podcasts, and seminars to assist their member firms in the ongoing process of adapting regulatory requirements to Social Media tools available to the rest of the business world.
Firms now the option of fully engaging in Social Media, which is rapidly becoming less an option and more a matter of survival.