Financial Advisors and Social Media: FINRA Notice 10-06

Online marketing experts routinely advise their clients to take advantage of social media as a means of engaging with current customers and reaching out to new ones. Social media is an incredible tool for doing just that. However, financial advisors and broker-dealer firms do not have access to the same benefits due to government restrictions relating to how social media can be used.

Social media can still be a valuable tool for financial advisors, but it has to be used in the right way. There are specific rules governing how social media and financial services interact, some of them being spelled out in Financial Industry Regulatory Authority (FINRA) Notice 10-6. We will discuss that notice in this blog post; our next post will discuss Notice 11-39. Be advised that both notices address a myriad of FINRA and SEC rules.

The Scope of Notice 10-06

The scope of the first regulatory notice is very broad. In other words, the FINRA used the notice to lay out the basic principles of how financial advisors could use social media for business purposes. The second notice (11-39) goes into more detail.

Notice 10-06 addresses five key areas:

  • Record Keeping – The Securities and Exchange Commission (SEC) requires financial advisors and their firms to retain records of communications between themselves and clients. According to Notice 10-06, advisors and broker-dealer firms also have record keeping responsibilities related to social media. Before using social media for business purposes, a means must be in place to retain records of those communications.
  • Suitability Requirements – In order for online communications to meet FINRA’s suitability requirements, they must comply with additional rules regarding disclosure, product information, etc.
  • Defined Electronic Forums – Where the general public tends to see all social media platforms as one and the same in terms of principle, FINRA sees things differently. They classify social media outlets as either static or dynamic, applying different guidelines to each category.
  • Social Media Supervision – Financial advisors and broker-dealer firms are required to implement policies and procedures capable of offering adequate supervision of social media use. Policies must also set forth rules for how social media can be used if not directly supervised by a broker-dealer.
  • Third-Party Participation – Most social media interaction initiated by a firm’s clients is considered third-party participation. Third party postings and comments generally fall outside the scope of FINRA rules. However, that may not be the case if a financial advisor or broker has any hand in preparing third party content.

You Need to Be Careful

It should be evident that the rules surrounding how financial advisors and broker-dealers can use social media are somewhat complicated. Due to the highly-regulated nature of financial services, financial advisers have to be very careful about how they use social media to interact with clients.

If there is ever any question about the suitability or appropriateness of social media communications, it is better to err on the side of caution. It is far better to find other ways to communicate with clients and avoid running afoul of the law than to find yourself dealing with a FINRA or SEC investigation.

In closing, independent advisers should be aware that online marketing is a key component of successful business. Marketers with little or no experience are not likely to understand how Notice 10-06 affects social media for financial services. They may need to be educated so nothing is done that could compromise your reputation or legal standing. Furthermore, you may have to be the one to provide that education. That is the unfortunate reality.