FINRA this week published guidelines around social media in Regulatory Notice 10-06. While I’m no lawyer, there appears to be a few things that were clarified with this notice:

• Records of social media communications will need to be retained as required by Rules 17a-3 and 17a-4 under the 34 Act. This alone might scare firms away from using social media tools – especially smaller firms. But, rest assured technology providers will find a solution that will make it easy for firms to do this.
• Anything with even a hint of a recommendation will trigger suitability requirements of NASD Rule 2310. Probably best to avoid this at all costs. Besides, the benefits of social media – especially the marketing and SEO benefits – are easily achievable without providing recommendations. This will likely be something that the individual advisor wishing to leverage social media sites will need to bear in mind.

  That said, the notice did say, “As a best practice, firms should consider prohibiting all interactive electronic communications that recommend a specific investment product…unless a registered principal has previously approved the content.” While it’s clear that it’s not a good idea to use Twitter to say, “Buy Apple at 200” it’s less clear what impact this comment will have on the ability of firms to discuss, say, managed accounts or ETFs collectively. Likely any discussion of investment products in the general sense will need to revert to pre-approved marketing materials.

• FINRA considers static postings to constitute “advertisements” under Rule 2210 while real-time interactive communications will not require prior principal approval. Essentially, Twitter=Email. This is a good clarification and will hopefully lead to more adoption by firms of these tools.
• Third-party posts (e.g. comments on blogs) are not considered part of the firm’s communication with the public and thus do not require prior principal approval. However, FINRA does recommend that guidelines for posting comments are maintained and explained to users. This is a great development and will hopefully lead to more firms turning on the comment feature of their blogs.

Again, I’m not a lawyer, but to the layman FINRA has appeared to clarify several of the cloudy issues surrounding social media use. In doing so, they have recognized that social media is a legitimate business tool and not some flash-in-the-pan fad.

For more on the use of social media in financial services, see our report Social Media:Trends and Tactics in the Financial Services Industry or speak with one of our analysts about an on-site presentation for your firm. Also, if you are planning on attending the IRI Marketing Conference in New York in February, I will be leading a panel discussion on the importance of social media. Joining me on the panel will be Jon Caddell, Digital Advertising Director at ING Financial Services; Stephen Johnson, Director Participant Services Marketing at TIAA-CREF; and Don Montenaro Chairman & CEO of TradeKing.