How the FINRA Advertising Rule Applies to Emerging Advisor Communications
March 16, 2018
SIFMA’s Social Media and Digital Marketing Seminar took place recently on an unseasonably warm day in our hometown of San Francisco. The day-long event covered a variety of topics (read the full recap here); on the compliance front, legal experts from Hearsay, FINRA, Sidley Austin, Charles Schwab and Morgan Stanley held the coveted pre-lunch panel slot and had the challenge of maintaining the attention of the crowd as the aroma of garlic rosemary chicken spread throughout the room.
On a more serious note, the panel reviewed and clarified how FINRA Rule 2210 – which governs broker-dealers’ communications with the public, including retail and institutional investors – applies to specific use cases that are top of mind for marketing, compliance and sales distribution teams. Here are a few interesting highlights:
Testimonials/Social Media “Likes” Use Case
Thomas Selman, FINRA’s Executive Vice President of Regulatory Policy and Legal Compliance Officer, explained that FINRA does not regard unsolicited third-party opinions or comments posted on a social network to be communications of the broker-dealer or the registered representative for purposes of Rule 2210.
Despite FINRA’s guidance, some of the compliance leaders on the panel said they still treat certain social media “likes” and testimonials as endorsements, simply based on the potential associations consumers may make between the action (the “like”) and the original comment. The key takeaway was that, in deciding whether to allow testimonials or “likes,” it boils down to the risk tolerance of the financial institution, both from a regulatory and business perspective.
Native Advertising Use Case
Native advertising is content on an online publication that resembles the publication’s editorial content, but is paid for by an advertiser and intended to promote the advertiser’s product. A native ad can take a form that mimics the news, feature articles, product reviews, entertainment and other material that surrounds it online.
Selman reiterated that FINRA provides a principles advice-based approach, as opposed to providing prescriptive advice. History has shown that simply providing basic principles, while allowing technology and business innovation in the early stages of a new communication scenario, helps shape usage and best practices. With that advice-based approach, Selman highlighted that firms may use native ads that comply with the applicable principles of FINRA Rule 2210, including the requirements that firms’ communications be fair, balanced and not misleading.
A key issue with native ads now is that it’s hard for the consumer to tell if the content is sponsored. Therefore, while it is allowed, there also needs to be sufficient disclosure. In particular, native advertising must:
- Prominently disclose the firm’s name
- Reflect accurately any relationship between the firm and any other entity or individual who is also named
- Reflect whether mentioned products or services are offered by the firm as required by Rule 2210(d)(3)
Video Conferencing Use Case
Video conferencing technology has become a necessity for internal and external business communications.
The panelists noted most firms allow video conferencing, but there are additional risk considerations. First, communications features within the technology (such as local chat and email) still need to adhere to the compliance standards set forth in the firm’s communications compliance guidelines, including recordkeeping requirements. Because of this, many firms disable the chat feature to minimize the chances of violations.
Secondly, the protection of confidentiality needs to be prioritized. A best practice to protect the dissemination of confidential information is to ensure all windows and program are closed in the background prior to starting the video conference.
Online Content Use Case
The panel also addressed issues when advisors post specific content online (hyperlinks to products, personal trip photos, links to corporate philanthropic events, etc.). While each scenario requires unique analysis, the main takeaway was that a compliance team needs to review the subject matter of the content and decide which content needs pre- or post-approval.
In addition, beyond regulatory requirements, a compliance team should take into consideration branding guidelines and whether content accurately represents the firm’s brand.
Considerations When Hiring a Compliance Vendor
When deciding on a compliance vendor, the panelists agreed that it’s important to factor in the interests of each of the business teams who are going to be involved. There are usually multiple points of contact internally who will directly or indirectly be impacted by the compliance solution.
Nubiaa Shabaka, Global Head of Cybersecurity Legal at Morgan Stanley, and Robert Innes, Associate General Counsel at Charles Schwab, both highlighted the importance of providing the points of contact an opportunity to present their considerations and concerns. A best practice is to gather the feedback through requests for proposals (RFPs) and ensure that each internal organization is involved in the RFP process.
In addition to the RFP process, it is also important to factor in the functionality of the technology itself. Chris Fernandes, Director of Legal at Hearsay, noted that even within a single organization, different lines of business may be facing different compliance workflows; not all may need to comply with broker-dealer regulations. Therefore, a solution needs to have flexibility and features needed to be able to address the considerations of multiple stakeholders.
This year’s compliance panel experimented with a new, more interactive Q&A format that seemed to resonate with the attendees. We look forward to next year’s discussion!
Disclaimer: The material available on this blog is for informational purposes only and not for the purpose of providing legal advice. We make no guarantees on the accuracy of the information provided herein.
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