The SEC’s Rule 2310 is Broader than You Think

As promised in my last blog post, in this post I will expand on Nate Elliot’s discussion of FINRA’s social media ruling in Forrester Research called “How to navigate the regulatory minefield and build effective social media programs” and argue why FINRA’s ruling on social media falls in line with the SEC’s broader ruling on communications under Rule 2310. This argument is an important one, because many wealth managers are hesitant to embrace social media and blog about various financial topics. By choosing to ‘sit this movement out,’ they are missing out on an opportunity to expand their brand awareness and engage both their existing and prospective clients:

FINRA: Where possible, the rules you follow in other media should apply to social media. 

“FINRA recognized the futility of reinventing regulations for the social age, preferring to work instead from existing rules. Most notably, social communications from employees of financial services firms are subject to SEC Rule 2310 on suitability and recommendations, just as they would be in any other medium. Likewise, firms are required to maintain records of their own and their employees’ social media statements, again as they would be required to in other channels.”[1]

The key takeaway Outbound social media communications are being treated like traditional communications channels. In other words, social media is simply a vehicle of distribution. And, it is important to note that the SEC regulates on the basis of content, not on the means of content delivery.

FINRA: Customer posts are not attributable to financial services firms.

“Many firms worry that consumer-posted content on company-operated social pages and forums is attributable to the firm and could cause SEC violations. Many wealth managers currently choose not to accept user posts on this basis. However, FINRA clearly states that customer posts are not attributable to firms:”[2]

FINRA does not treat posts by customers or other third parties as the firm’s communication with the public subject to Rule 2210. Thus, the prior principal approval, content and filing requirements of Rule 2210 do not apply to these posts. Under certain circumstances, however, third-party posts may become attributable to the find. Whether third-party content is attributable to a firm depends on whether the firm has (1) involved itself in the preparation of the content or (2) explicitly or implicitly endorsed or approved the content.

The key takeawayThe SEC does not hold wealth managers responsible for the behavior of others, which includes spoken words, incoming letters/emails and online comments of clients and prospects. Further, as wealth managers generally have complete control of their official website, Facebook and LinkedIn pages, they have the ability to remove any user-generated content that they deem unacceptable.

However, as it is not specified, but likely, that “Liking” and sharing content may be considered an endorsement of that content as per the adoption theory,[3] it would be prudent of wealth managers to include a notice on their social media pages that third-party posts do not reflect the views of their firm and have not been reviewed for completeness or accuracy.

FINRA: Firms can engage users in real-time social conversations without compliance preapproval.

“Many firms also choose not to respond to customer comments and questions on social sites because compliance can’t pre-approve responses quickly enough to allow the company to engage in real-time discussions. But again, FINRA’s guidance says this type of pre-approval is not required:”[4]

The definition of “public appearance” in NASD Rule 2210 includes unscripted participation in an interactive electronic forum such as a chat room or online seminar. Rule 2210 does not require firms to have a registered principal approve in advance the extemporaneous remarks of personnel who participate in public appearances. However, these interactive electronic forums are subject to other supervisory requirements and to the content requirements of FINRA’s communications rule.

The key takeaway Social media sites are categorized as static or dynamic with each treated differently by FINRA. A static blog is considered an “advertisement,” while a dynamic blog with real-time interactive communication is considered an interactive electronic forum, which does not require prior principal approval.

Most social networks will be treated as both static and interactive. For Facebook, LinkedIn, and Twitter, any static content (blog post, public profile, wall post, tweet, or status update) would be an advertisement, where non-static, real time communications (groups, public forums or chat) are considered an interactive electronic forum, which does not require prior principal approval. While interactive electronic forum communication does not require prior principal approval, firms are required to monitor these communications.

FINRA views real time communications made via social media outlets as public appearances and do not need to be compliance-approved.  Thus, wealth managers should be free to respond to comments made by visitors to their web presences.

[1]&2 Elliot, Nate (2010, September 7). How to navigate the regulatory minefield and build effective social media programs. Forrester Research

 [3] Under the “adoption” theory would depend upon whether, after its publication, an issuer, explicitly or implicitly, endorses or approves the hyperlinked information. SEC 17

[4] Elliot, Nate (2010, September 7). How to navigate the regulatory minefield and build effective social media programs. Forrester Research


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