This article has been provided courtesy of EveryDayTenacity.com Earlier this year, FINRA issued its Regulatory Notice 10-06, giving its members some guidance on their use of social media. In the months that have passed since the release of the Notice, the sentiment surrounding its guidance remains rather muted. In short, none of the guidance is earth shattering and in fact is quite underwhelming.

1. FINRA & SOCIAL MEDIA
This article has been provided courtesy of EveryDayTenacity.com
Earlier this year, FINRA issued its Regulatory Notice 10-06, giving its
members some guidance on their use of social media. In the months that
have passed since the release of the Notice, the sentiment surrounding its
guidance remains rather muted. In short, none of the guidance is earth
shattering and in fact is quite underwhelming.
However, broker dealers are rightly concerned about the risks and benefits
of allowing their advisors to participate in social media. According to
Socialware, Inc., there are at least 4 million registered LinkedIn users who
work in the financial services industry. With numbers like that, broker
dealers should be paying attention. To help, we have provided some
distillation of both Notice 10-06 and the subsequent webinar hosted by
FINRA that covered in more detail the issues raised by social media.
 There are 4 While this distillation may be helpful, it is not intended to be a final
million LinkedIn pronouncement on the way these issues may be handled by FINRA. It
users in the must always be at the front of any broker dealer’s mind that with the
release of Notice 10-06, FINRA makes it crystal clear that all internet
Financial communication – regardless of the specific media – is treated the same as
Services in person or written communication.
Industry
Recordkeeping Responsibilities
SEC Rules 17a-3 and 17a-4 and NASD Rule 3110 apply and firms must
retain records of communications related to their “business as such.”
Technology is being developed by industry vendors, but each firm must
determine whether any particular technology provides the necessary
retention and retrieval functions to comply.
Suitability Responsibilities
As one would expect, the standard suitability rules apply to
recommendations made through social media websites. NASD Notice to
Members 01-23 provides guidance regarding online suitability.
Additionally, recommendations of specific products are subject to a firm’s
existing rules which include required disclosures. Firms can and should
consider prohibiting interactive electronic communications that recommend
specific products. At its best, social media is a networking tool rather than
a sales tool. As a result, restricting representatives from making
recommendations through social media should not have a drastic impact
on the value its use may present.
Types of Interactive Electronic Forms
Chat rooms, online seminars, and other such interactive, electronic forums
may be a concern. Participation in such forums is considered a public
appearance as it is defined in FINRA Rule 2210.

2. Such appearances must be supervised, but do not require prior, written
approval of a registered principal. Less clear is how content posted on
social media websites will be treated; it may be deemed a public
appearance but, but such determination will depend on the particular facts
and circumstances.
Blogs
Many financial advisors – particularly in the RIA community – maintain
blogs. For regulatory purposes, it is important to know that static postings
are considered advertisements. However, participation in a blog that
occurs in more real-time (e.g. via a comment function) would be
considered a public appearance, as the blog is functioning as an
interactive, electronic forum. One important item of note is that the
frequency of content updates to static postings does not play a role in
distinguishing a between advertising and a public appearance.
Social Networking Sites
As with blogs, static information on social networking site is considered
advertisement. This would include things like profiles, backgrounds, or
“wall” information. Again like blogs, interactive communications would be
considered a public appearance. Interestingly, it appears that the amount
of time an interactive communication is posted does not automatically
make the content static, and thus an advertisement. For example, a real-
time status comment, or tweet would still be considered a public
appearance even if it were visible for a long period of time. Different rules
apply when a social networking site enable rep-to-rep or rep-to-BD
communication. Such communication is governed by FINRA Rule 2211,
which defines institutional communications and offers more flexible
compliance guidelines.
Supervision of Social Media Sites
When it comes to supervision of social media sites, the general message is
that it must be done, but the extent and method is largely up to each
individual broker dealer. However, the procedures for supervising such
activity should be similar to those outlined for electronic correspondence in
Regulatory Notice 07-59.
Third-Party Posts
With regard to third-party posts online, the issues are entanglement and
endorsement. Generally, such posts are not subject to FINRA’s
advertising rules. However, if a post is in any way attributable to the firm
(e.g. due to participation in the preparation of the content) or if the firm or
rep may be deemed to endorse or approve of the content it is a different
story. Specifically, “Liking,” “Voting For,” or “Re-Tweeting” any third-party
post would be considered an endorsement. Additionally, if a representative
solicits comments or feedback on content from a third-party, FINRA would
consider this equal to entanglements.

3. Many broker dealers currently find social media to be too large a hazard,
and therefore simply restrict access to it entirely. In fact, a recent survey of
financial service professionals by LederMark Communications found that
fully 39% of the participants said that company policy entirely precludes
their participation in social media. Additionally, 58% of financial service
professionals said that compliance concerns are a major impediment to
their embrace of social media for their business. At the same time, the
number of seniors who actively use the Internet has increased more than
55% over the last five years, with 17.5 million tracked at the end of 2009.
There is clearly opportunity in social media, and the tide does not appear to
be receding. However, prudent broker dealers will tread cautiously as the
various kinks are worked out. As social media gains greater acceptance
within the financial community, compliance and supervision solutions will
be developed and implemented, much as they have been in the past when
 17.5 million new technologies presented both challenges and opportunities. The fax,
seniors email, and websites have all posed similar challenges. Social media will
likely follow a similar path.
regularly use
the Internet
EverydayTenacity.com c/o Adam Verchinski
View EverydayTenacity.com for original research and perspectives
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Adam Verchinski is the Marketing and Client Communications, IT Business
Analysis Manager, at a leading global investment management firm that
offers research and diversified investment services to institutional clients,
individuals and private clients in major markets around the world. Adam's
background includes over 11 years as a technology and management
consultant working exclusively in financial services, on both the buy and
sell sides.
You can connect with Adam via his website, EverydayTenacity.com as well
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