Guidance on Social Networking and Business Emails for Broker-Dealers
FINRA’ s April 2017 guidance helps its member broker-dealers understand and comply with FINRA communications rules online.
In light of new trends and technologies, broker-dealer firms could benefit from continued guidance on social media and digital communications to help them keep up.
The new FINRA guidance presents a detailed Q&A covering text messaging, personal communications, hyperlinking, testimonials and endorsements, native advertising, third-party directory corrections, and BrokerCheck links.
How We Interact is Changing Rapidly.
- According to a PEW Research Center Mobile Fact Sheet 2017, 95% Americans own a cellphone. The share owning smartphones is up 77% since 2011.
- In April 2016, Facebook Messenger reported reaching 900 million monthly active users over its ten year lifespan.
- 2016 Business Insider and Huffington Post media articles predict that by 2021, revenue earned from “native advertising”—those that mirror the look and feel of the content surrounding them–will take over digital advertising. Native ads fall in three main categories: social native, native-style display, and sponsored content. This jump can largely be attributed to Facebook and Twitter and new programmatic technologies, which facilitate scaling up native campaigns.
Take Aways from the FINRA Q&As
A broker–dealer associated person or AP may interact with text messaging apps and chat services if s/he retains “records of those communications as required by SEA Rules 17a-3 and 17a-4 and FINRA Rule 4511.
Whether a communication by an AP is subject to Rule 2210 depends on whether the content relates to the products or services of the firm. As an example, an AP could personally share links to content that the firm makes available about a job opening or firm charity event since it is not related to the firm’s products or services
Hyperlinks and Sharing:
If a firm shares or links to specific content posted by an independent third-party such as an article or video, the firm has adopted that content is responsible to ensure “when read in context with the statements in the originating post, the content complies with the same standards as communications created by, or on behalf of, the firm.”
Whether a firm has adopted the content of an independent third-party website or any section of the website through the use of a link depends on (1) Is the link is “ongoing” and (2) does the firm have influence or control over the content of the third-party site.
“Ongoing” means the link is continuously available to site visitors even when updated and not based on whether material is favorable about the firm. The ongoing link must conform to the content standards of the communications rules, including the prohibition of misleading or inaccurate statements or claims.”
Is native advertising inherently misleading under FINRA’s communications rules?
“Native advertising has been defined as content that bears a similarity to the news, feature articles, product reviews, entertainment and other material that surrounds it online.” This could be an advertising video or article posted on an independent third party publisher’s site in a manner similar to content of the publisher.
As required by FINRA Rule 2210, native ads are paid advertisements and must be disclosed as such. “If a firm or representative has paid for the publication, production or distribution of any communication that appears to be a magazine, article or interview, then the communication must be clearly identified as an advertisement. Disclose the firm name, the relationship between the firm and the paid writer, and whether the products or services mention are offered by the firm
Broker-dealers may not arrange for comments or posts by an individual (an “influencer”) to promote the firm’s brand, products or services. The firm is hence entangled with the resulting communication. Clearly identify as advertisements any communications that take the form of comments or posts by influencers and include the broker-dealer’s name as well as any other information required for compliance with Rule 2210.
Testimonials and Endorsements:
Some websites allow individuals who have connected to another user on the network to give an opinion of, or provide comments regarding, the user’s professional capabilities.
FINRA does not regard unsolicited third-party opinions or comments posted on a social network—example LinkedIn Emdorsements—to be communications of the broker-dealer or AP for purposes of Rule 2210. That said, Rule 2210(d)(6), Testimonials, states:
- In testimonial concerning a technical aspect of investing, “the person making the testimonial must have the knowledge and experience to form a valid opinion.”
- Retail communications with a testimonial concerning advice or performance of a member or its products must disclose:
- A testimonial may not be representative of the experience of other customers.
- A testimonial is no guarantee of future performance or success.
- A testimonial is paid if more than $100 in value was exchanged.
Note: By liking or sharing the favorable comments on social media, an AP has adopted them and the comments are subject to the communications rules.
Testimonial disclosures may be provided in the interactive electronic communication itself near the testimonial via hyperlink, such as “important testimonial information.”
Advisers have different rules. Firms registered under the Investment Advisers Act of 1940 (Advisers Act) should be aware that Section 206(4)-1(a)(1)forbids even an indirect reference to a testimonial endorsement. Such advisers may not “directly or indirectly, to publish, circulate, or distribute any advertisement which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser.”
Correction of Third-party Content:
A broker-dealer may correct the factual content in an unaffiliated, unpaid third-party online directory of businesses listing info on an AP or broker-dealer and it would not be considered a communication of the firm or the representative. Firms may also post a comment to correct the error.
Effective June 6, 2016, FINRA amended Rule 2210 to require each of a firm’s websites to include a readily apparent reference and hyperlink to BrokerCheck on a retail broker’s home page and any other web page that includes a professional profile of one or more registered persons who conduct business with retail investors.
BrokerCheck-related icons and similar resources are available.A firm is not required to include a reference and hyperlink to BrokerCheck to an app created by a firm according to Rule 2210(d)(8) unless an app accesses and displays a specific webpage on the firm’s website required to include the BrokerCheck link under the rule.
Past Guidance Overview
- Prior FINRA guidance was issued in Regulatory Notice 10-06 and Regulatory Notice 11-39 to “provide guidance on the application of FINRA rules governing communications with the public to social media sites and the use of personal devices for business communications” and to cover related recordkeeping, suitability, supervision and content requirements.
- As of February 4, 2013, FINRA adopted amendments to Rule 2210 codifying the guidance in those notices related to the supervision of interactive social media posts by member firms.
- In December 2014, FINRA published the Retrospective Rule Review Report: Communications with the Public, recommending more FINRA guidance.
- The April 2017, FINRA Notice 17-18 provides further guidance but does not alter the prior principles or guidance.
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