I was a panelist in January for a webinar on Investment Advisers and LinkedIn. We were all set to go, my slides were all prepared and submitted, and the day before the webinar FINRA released Regulatory Notice 10-06 – Guidance on Blogs and Social Networking Web Sites.
The timing of the release caused me to scramble a bit to re-work my presentation for the webinar, but it all worked out. It was a great webinar, as the other three panelists were experts on marketing and business practices for financial advisers, with significant experience using social media for marketing. A replay is available at InvestmentNews.com.
As to the release itself, there was nothing very surprising, but the guidance from FINRA was very helpful. The most significant part of the release was the discussion of Twitter, and its use by financial professionals.
A basic premise that underlies all of this is that the use of the Internet, in whatever form, is advertising, or a communication with the public, by FINRA and for investment advisers, the SEC as well as the state regulators. FINRA has specific rules regarding advertising and public communications. However, the rules are somewhat convoluted, and sometimes it is not intuitive when you attempt to apply those rules to new technologies.
One basic tenant of advertising rules that is true across the board – advertising and public appearances must be supervised, archived, and stored. And therein lies the challenge for Twitter and other real-time communications.
FINRA had two choices with Twitter – either treat it as a discussion in a chat room, or treat it as a web site. It’s like a chat room, in that it is real-time, but it is also permanent and lasting, like a web site. The difference is significant, since a web site requires pre-approval by the firm, and a filing with FINRA. A chat room discussion does not require pre-approval or filing. Both require archiving and storage.
For brokers and compliance departments, the distinction is not important; the question is how do you want me to treat these communications? Without guidance, most firms will do what was done with email – they will ban it.
Fortunately, FINRA’s approach to real-time social media, which includes Twitter, Facebook status updates and LinkedIn network updates, is reasonable, and workable. FINRA was faced with two choices, but adopted a third choice – treat tweets and similar posts like email.
Tweets and updates are not like emails from a regulatory perspective, since FINRA has always treated one-on-one emails and one-to-many emails differently, but kudos to FINRA for taking a reasoned and practical approach. The release states that firms may adopt supervisory procedures similar to those outlined for electronic correspondence (email) as set forth in Regulatory Notice 07-59. That notice provides that firms may employ risk-based principles to determine the extent to which the review of incoming, outgoing and internal electronic communications is necessary for the proper supervision of their business.
Allowing firms to treat tweets like email, and permitting firms to decide the best practice for their own business model, is a significant step. Some firms will continue to ban tweets, but others will use software similar to that used to monitor email, and allow their brokers to use Twitter.
This will require firms to adopt written supervisory procedures and train and approve brokers who are going to use social media, and the modification of the software that is used to monitor emails, but that is reasonable, once the software vendors upgrade their systems.
Writing the procedures and providing the training in the newest electronic communications methods may not be a simple task for some firms. However, Twitter has proven itself to be an excellent communications and marketing platform, one that innovative firms, and their brokers, will benefit from.
My next post will deal with LinkedIn and financial professionals. One heads up – think about recommendations and third party links!
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Mark Astarita, Esq. is a securities attorney who represents financial professionals nationwide on all aspects of their business and compliance needs. He has been online for over 20 years. Follow him on twitter at www.twitter.com/astarita
