Investment Firms Allowed to Use Social Media Under SEC/FINRA Rules
The world is evolving faster than most people can absorb, so it's not surprising that some industries are adapting to new technologies faster than others, but in the world of investing, the Social Media 'evolution' has had to meet the compliance issues of the regulatory agencies meant to protect the investor from unethical advisers.
Social Media tools like blogs and Internet-based social networking tools have opened up a new environment for business by allowing a rapid-response connection between the customer and the seller of a product or service. In most Internet commerce it is a caveat emptor (let the buyer beware) situation, where the buyer must pursue legal remedies for a broken contract or unethical representation of a product or service after the fact.
In investment advising the company or firm is expected to protect the buyer before, during, and after the fact, which requires the firm to intercede and supervise interactions that involve investment advice. That has led many firms to prohibit all Social Media involvement by its representatives.
However, seventeen months ago the largest independent financial regulator stepped forward with a road map for investment firms on how Social Media could be used by their representatives while meeting the need to protect the investor.
Joseph Price, Senior Vice President of Advertising Regulation/Corporate Financing at FINRA (Financial Industry Financial Authority) discussed the issues with investment firms and Social Media with me earlier today. Price is one of the authors of Regulatory Notice 10-06 titled Social Media Web Sites - Guidance on Blogs and Social Networking Web Sites that was published in January 2010. Price said that using Social Media, "..depends on the firm's business model," and that it, "..has to make sense for the firm." He confirmed that the regulations only effect business communications that involve investment advising and promotion. Personal blogs, Twitter, Facebook, and other Social Media tools are not a concern for the regulators even though individual firms may have policies prohibiting personal on-line interactions.Continued on the next page