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FINRA rules may give advisors edge in social media

Proposed rule changes by FINRA could allow advisors and registered reps to fully utilize social media in their businesses.

This article originally appeared in Financial Advisor Magazine on September 13, 2011.
On July 28, the SEC published FINRA’s proposal to create FINRA Rule 2210 to replace NASD 2210 and 2211 and their interpretive materials. FINRA originally proposed the new rule back in 2009, but has made some key modifications in its latest draft after taking into consideration comments submitted by several member firms. Unless you are a regulator or compliance officer, you may be asking yourself, “What does this mean for my firm and how does the proposal change the game for social media use?”
These changes mean “#winning” for registered reps and other financial services employees who are chomping at the bit to use social media to grow business, strengthen existing relationships, network, recruit top talent and educate their constituencies while remaining FINRA- and SEC-compliant. The revised rules demonstrate the FINRA task force’s evolving understanding and acceptance of social media as a crucial business tool for financial services. The new rules set out clearer definitions and more feasible standards for broker-dealers’ approval and monitoring responsibilities concerning social media communications with the public.
One of the most important changes in the proposed rule is that it condenses the communications categories from six (advertisement, sales literature, correspondence, institutional sales material, independently prepared reprint, and public appearance) to three (institutional communications, retail communications, and correspondence). Understanding these definitions and which category your business communications fall into is crucial to your social media success because your pre-approval, filing and content responsibilities vary depending on the category.
Please note that rules on communications with the public are drafted broadly to apply to all written communication mediums such as print advertisements and sales collateral. We’ve framed them below in the context of social media scenarios to make them clearer and more concrete.

Institutional Communications

Definition: Written (including electronic) communication that is distributed or made available only to institutional investors.
Formerly Categorized as: Institutional sales material
New Developments: Category will now encompass communications about multiple employee benefit plans and multiple qualified plans offered to employees of the same employer if they reach at least 100 participants. Also, internal firm communications aiming to train or educate registered reps about the firm’s products or services are considered institutional communications.
Discussion: Because of the viral nature of social media and the public nature of most users’ wall settings, it’s difficult to imagine a scenario in which a post or tweet could be confined to institutional investors alone. However, if a rep were to push out a communication through Facebook’s messaging function or LinkedIn’s messaging/InMail function to existing institutional investors alone, that communication would fall under this category. Further, Facebook has recently launched a feature in which users are assigned an email alias. Communications with existing institutional investors through such an account would be classified as institutional communications.
Fictional Social Media Scenario #1 of Institutional Communications: Joe Broker, a registered rep, sees in his Facebook newsfeed that GroupCoupon has just received Series B funding. Seeing an opportunity to get in on the action, he writes his customer of five years, Chris Coupon, from his account to congratulate Chris and ask him if his company plans to continue sourcing the company’s employee plan from him.
Fictional Social Media Scenario #2 of Institutional Communications: Sam, Principal of AdvisorsRUs, a FINRA member, uses his LinkedIn account to message the reps in his LinkedIn group a training guide he has put together about the company’s new CMO products.
How FINRA’s New Rule Affects Institutional Communications: Institutional communications are subject to the same monitoring and archiving standards as before (no pre-approval is required). However, institutional communications will now be subject to the new filing and content standards under FINRA Rule 2210.

Retail Communications

Definition: Written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30-day period. Notably, retail investors are defined as all persons who are not institutional investors–whether or not the target audience has an account with that rep or firm is irrelevant.
Formerly Categorized as: Advertisements, sales literature, public appearances, and independently prepared reprints
Discussion: Most social media content aimed at selling products or services falls into this category (e.g. tweets/posts, sidebar ads, promotional tabs, widgets). Again, because of the public and viral nature of social media, if your tweets, wall posts, promotion, or campaigns do not reach more than 25 people in 30 days, you’re doing something wrong!
Fictional Social Media Scenario of Retail Communications: Maximilian Zuckerberg, a dual registered FINRA rep and advisor, posts on his Facebook account, “We really do have an outstanding team and great results. Please message me if you are interested!“ with a link to a Wall Street Journal article praising his firm for scrupulous accounting and top returns for the third quarter.
How FINRA’s New Rule Affects Retail Communications: Proposed FINRA Rule 2210(b)(1)(A) would require an appropriately qualified registered principal to approve each retail communication before the earlier of its use or filing with the Department of Advertising. However, certain exemptions are detailed in Proposed FINRA Rule 2210(b)(1)(D) for 1) retail communications that are not research reports, 2) retail communications posted on an interactive electronic forum (e.g. Facebook, Twitter, and LinkedIn), and 3) retail communications that don’t make financial or investment recommendations or otherwise promote a product or service of the member. Thus, Facebook wall posts, LinkedIn posts, and tweets would be exempted and not subject to pre-approval by a firm principal. All other communications (e.g. ads, tabs, widgets, profiles) would still be subject to pre-approval.


Definition: Any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30-day period. Under the new rules, any retail communication that is not considered a “research report” should be supervised in the same manner as correspondence.
Formerly Categorized as: Correspondence (market letters, written letters, and email messages if sent to 25 or fewer prospective customers within a 30-day period)
Discussion: This is the category for content and messages that are directed at a small, finite group of people, including prospective clients.
Fictional Social Media Scenario of Correspondence: Jane Broker, a registered rep, is perusing Twitter when she sees that LinkedIn has gone public. Hoping to recruit some new high-wealth clients, she uses her LinkedIn account to send the top 4 executives of the company an electronic private wealth management brochure listing the firm’s services and differentiators.
How FINRA’s New Rule Affects Correspondence: Same as current monitoring and archiving requirements in NASD Rules 2211(b)(1) and 3010(d), which require that firms maintain 1) each communication for 3 years from the date of last use, 2) a copy of the communication and the dates of first and last use, and 3) the name of the registered principal who approved the communication and the date of approval. (For more on this, please see our whitepaper titled The Financial Services Professional’s Guide to Brand and Regulatory Compliance.)
Many firms pushed for a fourth category of “interactive electronic communications” but the proposed rules do not include it. You can find members’ comments on this here. The proposed rules also include a few other key changes, such as codifying that a principal must pre-approve any communication submitted to the Department of Advertising, and incorporating content standards and filing requirements.
FINRA members and the public at large allowed comments on the proposed rules until August 24, 2011. The SEC will now consider all submitted comments and make its final determination on the proposal.
The bottom line: FINRA’s proposed definitions, exceptions, and rules make more sense for social media compliance than their predecessors. I wish I could hit a “like” button on the FINRA Page right now.

For more information, join our upcoming webinar on September 28th at 12pm PT (3pm ET).

Ally Basak Russell

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