Regulatory Guidelines for Social Media – FINRA and SEC Weigh In – Part 2

Social Media Marketing brings unique challenges to financial firms and Registered Investment Advisors. Both FINRA and the SEC have set out guidelines and suggestions. This is part two of a brief overview with practical suggestions you can use.

Third Party Posts: Whether a third party post is attributable to the firm depends on whether the firm has (a) involved itself in the preparation of the content(“entanglement”) or (b) explicitly or implicitly endorsed or approved the content (“adoption”) These provide a useful framework for Registered Investment Advisors (RIAs) as well. Firms may use a prominently displayed disclaimer of lay out rules regarding third party posts to help mitigate the risks, but these will only constitute parts of the facts and circumstances that FINRA would consider in determining if a firm had become entangled with or adopted third party content that violates its rules. Just because a post is adopted by a firm, or the firm is entangled in it, does not mean that the post must be disallowed. If the content of the third party post does not violate any rules or regulation, then the firm may choose to adopt a third-party post.

Data Feeds: Firms must be familiar with the proficiency of the vendor of the data and its ability to provide data that is accurate as of the time it is presented on the firm’s website. Firms must constantly monitor the accuracy of these feeds and promptly take measures to correct any inaccurate data.

Testimonials: Under NASD Rule 2210(d)(2)(A), any advertisements containing a testimonial must prominently disclose (i) that the testimonial may not be representative of the experience of other clients, (ii) the testimonial is no guarantee of future success or performance, and (iii) if more than a nominal sum is paid, that it is a paid testimonial. Third party use of certain features such as the “like” feature on a RIA’s social media site, could be deemed a prohibited testimonial if it is an explicit or implicit statement of a client’ experience with a RIA. Firms should consider having policies regarding the use of “recommendations” on LinkedIn. In addition, Firms should consider employment law limitation on policies that prohibit the use of this function entirely.

Accessing Social Media Sites from personal devices: Each firm needs to develop a clear policy on whether employees can use personal devices and social media accounts for Business-related communications. It is smart to require employees to separate personal devices and accounts from business ones.

Social Media Policies: Recent employment law decisions suggest that simply banning the use of social media may conflict with certain employee rights. The SEC encourages firms to develop a policy solely dedicated to social media compliance because existing advertising and marketing policies may not accurately and consistently address the unique risks presented by social media communications. Firms should tailor their policies to their specific needs.

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