The Financial Industry Regulatory Authority (FINRA) has rules in place regarding social media use by financial advisors and firms. These rules are designed to protect investors and ensure advisors maintain professional standards when using social media platforms like Facebook, Twitter, LinkedIn etc. The main FINRA rules on social media cover issues like communicating with the public, record keeping, third-party posts and supervision. Understanding these rules is important for financial advisors to avoid regulatory violations.
What is FINRA?
FINRA is a government-authorized self-regulatory organization that oversees U.S. broker-dealers. Its mission is to protect investors and ensure market integrity through regulation of broker-dealers and their registered representatives. FINRA enforces rules and regulations for the securities industry, including governing the activities of over 630,000 registered representatives.
FINRA was created in 2007 through the consolidation of the National Association of Securities Dealers (NASD) and the regulatory arm of the New York Stock Exchange. It is overseen by the Securities and Exchange Commission and has the power to discipline registered representatives and firms that fail to comply with its rules and regulations.
FINRA Rules on Social Media
In 2010, FINRA issued Regulatory Notice 10-06 to provide guidance to firms regarding social media use. This was followed up with Regulatory Notice 11-39 in 2011 that gave further clarification. Together, these notices outline the key FINRA rules regarding social media that financial advisors must follow:
1. Communications Need to be Supervised
FINRA Rule 2210 requires firms to supervise communications with the public made by representatives. This extends to communications on social media platforms. Firms must have policies and procedures in place to supervise social media communications by their advisors. This includes reviewing and approving certain posts before they are made.
2. Keep Records of Communications
FINRA Rule 4511 requires firms to make and keep records of business-related communication. Social media posts need to be retained, including the posts themselves and all associated information. Firms must have systems to archive advisors’ social media communications so they can be reviewed during audits.
3. Adhere to Standards for Communications
FINRA Rule 2210 sets out standards that all communications must adhere to. This includes being fair, balanced and not misleading. Statements made on social media platforms must uphold the same standards. Claims should be fact-based, with links or sources cited where applicable. Facts and figures used should be current and verifiable.
4. Disclose Affiliations
FINRA Rule 2210 states that advisors must disclose their firm affiliation in communications. This applies when promoting services or products on social media. The advisor’s firm name should be clearly stated, along with the representative’s relationship to the firm. Generic disclaimers like “opinions are my own” do not satisfy the affiliation disclosure requirement.
5. Do Not Use Client Testimonials
Client testimonials and recommendations are considered communications, so FINRA Rule 2210 applies. In most cases, advisors are prohibited from sharing client endorsements and testimonials on social media platforms. Exceptions may be made in certain circumstances if disclosures are included.
6. Respond to Customer Complaints
FINRA Rule 4530 requires firms and advisors to report and respond to customer complaints. Social media sites used for business must be monitored to identify any potential complaints. Compliance teams should have procedures for investigating and addressing complaints that arise on social media.
7. Do Not Share Nonpublic Information
FINRA Rule 5230 prohibits the distribution of nonpublic information. Advisors must take care not to inadvertently share confidential customer or firm information through social media channels. Social media policies should address the sharing of any sensitive information.
8. Do Not Recommend Speculative Securities
FINRA Rule 2114 aims to curb fraudulent sales tactics involving speculative securities. Social media must not be used to recommend speculative, thinly traded securities or microcap stocks. Such communications require balanced disclosures concerning risks.
9. Adhere to Advertising Rules
Most social media posts made for business purposes fall under the definition of “advertisement” in FINRA Rule 2210. As such, content used to promote services and products must follow FINRA advertising rules. This includes approval procedures, maintaining copies and inclusion of required disclosures.
10. Do Not Make False or Misleading Statements
FINRA Rule 2010 requires advisors to deal fairly with clients and restricts deceptive practices. Any social media communication must be honest and avoid false or exaggerated claims. Advisors should verify facts, not overpromise investment outcomes and provide balanced representations.
Third-Party Posts
FINRA has rules concerning third-party posts on sites controlled by a firm or advisor:
- Firms must approve in advance any links to third-party sites (FINRA Rule 2210).
- Advisors are responsible for content posted by a third party on their site or profile (FINRA Rule 2210).
- Sites must be monitored to ensure any third-party posts comply with FINRA communications rules.
- Claims made by a third party must be verified before allowing them to be posted.
- Representatives must avoid liking or sharing third-party posts that are false or misleading.
Consequences for Violations
There are significant consequences for financial advisors and firms that fail to comply with FINRA social media rules. FINRA routinely examines firms’ policies, procedures and communications records when conducting audits. Violations can result in stiff penalties:
- Fines of $5,000 – $73,000 for minor first-time infractions.
- Fines of $10,000 – $146,000 for more serious offenses.
- Suspension, revocation or barring of advisor registrations.
- Termination of firm membership with FINRA.
In addition to fines, violations may be publicly reported as disciplinary actions. This can significantly damage an advisor’s and firm’s reputation. Given the severe penalties, it is critical that policies ensure social media communications fully comply with FINRA regulations.
Social Media Policies for Compliance
To meet FINRA social media rules, firms should implement detailed policies enforced through supervisory procedures. A social media compliance policy should cover:
- Content guidelines advisors must follow.
- Processes for review and approval of posts.
- Procedures for retaining social media records.
- Usage restrictions such as prohibiting client testimonials.
- Monitoring third-party content and responding to complaints.
- Consequences for non-compliance with the policy.
Ongoing training should educate advisors on policy requirements. Compliance staff must consistently monitor social media activity and take swift action regarding potential violations. Robust supervision and adherence to FINRA regulations is key to avoiding significant fines and reputational damage.
Conclusion
FINRA rules restrict financial advisors’ social media use to protect investors from false or misleading information. Under FINRA regulations, firms must supervise advisor communications, retain records, and ensure adherence to standards regarding content. Strict social media policies should be implemented to satisfy requirements around communications, advertising and confidentiality. Advisors should receive regular training on policy compliance and have posts approved where applicable. Diligent supervision enables firms to identify potential violations and take corrective action. With the severity of penalties, it is vital that advisors and firms maintain compliance with FINRA social media rules.
