The regulatory bodies governing the securities industry aren’t exactly known for keeping up with the trends. With the dramatic rise of social media over the past decade or so, this has created a problem for many financial advisors trying to communicate with potential and existing clients without violating any advertising, solicitation, or other rules established by FINRA or the Securities and Exchange Commission.

In this article, we’ll take a look at some important do’s and don’ts for financial advisors when using social media, like Twitter, Facebook or LinkedIn.

Playing by the Rules

FINRA and the SEC haven’t issued specific rules regarding the use of social media, but rather, have applied existing rules to the new media format. In order to help clear up some of the resulting issues, the agencies have issued a number of notices designed to lay out guidelines that should be followed in order to remain in compliance and answer some key questions that arose.

The relevant notices include:

  • FINRA 10-06 – Guidance on Blogs and Social Networking Web Sites
  • FINRA 11-39 – Guidance on Social Networking Websites and Business Communication
  • SEC Risk Alert – Investment Advisor Use of Social Media

Financial advisors should reference these sources directly in order to get the most accurate and comprehensive information about what’s permitted and denied when it comes to using social media in their practices. In addition to these guidelines, financial advisors should be sure to adhere to their own firm’s guidelines when it comes to the appropriate use of social media in their business. (For related reading, see: Financial Advisors are Feeling Cyber-insecure.)

Pretend It’s a Conference

Financial advisors using social media should refrain from providing specific investment advice, since it could violate the “suitability” regulations governing their practice. In 1999 and 2003, FINRA stated and then reaffirmed that a financial advisor’s participation in a chat room (and by extension social media) is subject to the same requirements as a presentation in person before a group of investors.

As a general rule, financial advisors should pretend that they’re speaking to a room full of investors whenever making a post on social media, including posts directed at an individual person that’s publicly available to be seen. It may also be a good idea to include a general disclaimer on any social media postings indicating that the content shouldn’t be considered investment advice. (For related reading, see: How Financial Advisors Are Leveraging Social Media.)

Keep Detailed Records

Financial advisors must preserve certain records for a period of at least three years, with the first two years being in an “easily accessible” location. According to government regulations, these records must include originals of all communications received and copies of all communications sent when the content of the communications constitutes a business communication.

In other words, financial advisors should keep detailed records of all social media posting and messages, regardless of their origin or device. Facebook postings made via a personal computer may be easy to remember, but Twitter messages posted via smartphones and automated messages related to business may also be included in the definition of business communications, making it important to record. (For more, see: Website Tips for Financial Advisors.)

Defining a Testimonial

If a client “likes” a financial advisor’s Facebook page, does that constitute an official testimonial since that “like” is advertised to the clients friends? Financial regulators struggled with this question and the situation still remains a bit too ambiguous for comfort. When such testimonials aren’t solicited (e.g. appear on independent social media or review websites), they are generally okay by regulatory bodies.

Financial advisors can sidestep the concerns surrounding these issues by avoiding paid advertisements on social media websites, such as Facebook, where those who have “liked” the page are displayed in the ads. It’s important to avoid influencing any third-party commentary by displaying social profiles or information on pages curated by the financial advisor and instead simply let them exist as-is. (For related reading, see: A Guide to Corporate Social Media.)

The Bottom Line

Financial advisors should be aware of the many rules and regulations surrounding the use of social media in their practice. While social media is governed by the same rules as traditional media, the different ways that its disseminated and consumed makes it difficult to determine what’s right and wrong. Financial advisors can avoid some of these mistakes during their day to day operations. In addition to these guidelines, financial advisors should carefully read and consider the SEC’s, FINRA’s and other guidelines. It’s also important to keep in mind your firm’s own rules and regulations governing social media use, which often goes above and beyond the regulatory requirements. (For more, see: Getting the Most Out of Your Web Presence.)