By Katherine S. Bowles, Esq. of Shustak Reynolds & Partners, P.C. posted on Wednesday, September 13, 2017.

Kara Siegel

Senior Attorney

Katherine S. Bowles, Esq.
619.696.9500 ex. 124
[email protected]

FINRA has issued new guidance on the use of social media and digital communications for member firms and persons associated with member firms. Regulatory Notice 17-18 provides guidance in the areas of recordkeeping, third-party posts and hyperlinks to third-party sites. This notice builds on prior Regulatory Notices 10-06 and 11-39 that concerned communications with the public to social media sites and the use of personal devices for business communications.

Text Messaging – More frequently, clients want to interact with registered representatives through text messaging and other chat services. Records of these communications related to its business that are made by these means must be retained, and any firm that intends to communicate using these means must first ensure that it can retain records of those communications as required by SEA Rules 17a-3 and 17a-4 and FINRA Rule 4511.   

Sharing of Content – This new FINRA guidance makes clear that by sharing or linking to third-party content, the member firm has adopted the content and is responsible for the content to the same extent it is for firm-generated communications. As for personal communications, an associated person who shares or links to content that the member firm made available, which is not related to its products or services (such as the firm’s sponsorship of a charitable event), is not subject to Rule 2210.

The firm is not responsible for links to other content in the third-party content it shares, unless the facts and circumstances indicate the firm has adopted or became entangled with such content. Whether the firm has adopted this content depends on whether the firm has influence or control over it. This analysis changes when the firm shares or links to content that itself serves primarily as a vehicle for links, and in that situation the firm would have adopted the other content accessed through those links. This rule would apply if a firm linked to a webpage made up largely of links to other content.

Additionally, if a firm includes on its website a link to a section of an independent third-party website, whether it has adopted the content of that website depends on two factors: (1) whether the link is “ongoing” and (2) and whether the firm has influence or control over the content of the third party site. The firm has not adopted content if the link is “ongoing”. “Ongoing” means that: (i) the link is continuously available to investors who visit the firm’s site; (ii) investors have access to the linked site whether or not it contains favorable material about the firm; and (iii) the linked site could be updated or changed by the independent third party and investors would still be able to use the link. The language introducing the ongoing link must also conform to the content standards of the communication rules, including not being misleading or inaccurate.

Native Advertising – This is advertising content that matches the form and function of the platform on which it appears, such as content that is similar to a news feature article, product reviews, or other material that surrounds it online. This regulatory notice clarifies that native advertising is not inherently misleading and can be used as long as it complies with Rule 2210, meaning the firm must ensure the communication is fair, balanced and not misleading. Native advertising must prominently disclose the firm’s name, accurately reflect any relationship with the firm and any other entity or individual named in the advertisement, and state whether mentioned products or services are offered by the firm. Also, 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. Any communications that take the form of comments or posts by influencers should be clearly identified as advertisements and include the broker-dealer’s name as well as any other information required for compliance with Rule 2210.

Testimonials and Endorsements – Unsolicited third-party opinions or comments posted on a social network site such as LinkedIn are not communications of the firm or representative for purposes of Rule 2210. However, if the firm or representative likes or shares content, they have adopted the content and become subject to the communication rules, including prohibitions on misleading or incomplete statements or claims, the testimonial requirements, and the supervision and recordkeeping rules. Required testimonial disclosures may be provided in the interactive electronic communication itself in close proximity to the testimonial or the disclosures may be made through a clearly marked hyperlink accompanying the testimonial using language such as “important testimonial information”.

Third-Party Content – If an unaffiliated third-party publisher posts an online directory of business information, contacting the publisher to provide a correction is not considered a communication of the firm or the representative as long as the correction pertains to factual information. The firm or representative may also post a correction by posting a comment on the listing without it being deemed to have adopted the incorrect listing.

BrokerCheck Link – FINRA has clarified that apps created by firms do not need to have a reference and hyperlink to BrokerCheck because Rule 2210(d)(8) specifically references websites. However, if the app displays a webpage of the firm in the app, the firm must ensure that the link is readily apparent when the page is displayed through the app.

Shustak Reynolds & Partners, P.C.’s experienced San Diego FINRA and securities attorneys are well versed in guiding financial advisors through transitions from one firm to another. Our FINRA arbitration practice group routinely represents financial advisors and registered representatives in employment and promissory note disputes before FINRA’s arbitration division.  Contact us today for a confidential, complimentary consultation.

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