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#HSonAir Bonus Episode: The DOL Fiduciary Rule

DOLThe release of the long anticipated DOL Fiduciary Rule is certain to be a topic of discussion and debate in the days and weeks to come as the industry digests the final ruling and interprets its effect on the industry.
In this bonus episode, we share a short audio segment from a recent compliance webinar with Yasmin Zarabi, Vice President of Legal and Compliance at Hearsay Social and Stephen Selby, CRCP, Assistant Vice President of Social Media Strategy, Audit & Regulatory Relations at LIMRA with thoughts on the DOL Ruling potential impact on social media and digital technology in Financial Services.
We invite you to be part of the conversation with @victorgaxiola and @alissadossantos on Twitter using hashtag #HSonAir.  If you have a question, comment or suggestion, please send an  e-mail to OnAir@HearsayCorp.com.   We also invite you to “like” our podcast page on Facebook where we share posts about the podcast, our guests, and other fun stuff.
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Highlights from KPMG’s Corporate Governance Board Summit

Recently, I participated in KPMG’s 12th Annual Audit Committee Issues Conference at the Ritz-Carlton in San Francisco. The event – Governance Challenges & Priorities Driving the 2016 Agenda – spanned two days and covered several pressing topics that corporate boards are currently facing and will encounter in the near future.

I had the pleasure of joining Ken Daly, CEO of the National Association of Corporate Directors (NACD), and Tim Flynn, board director at J.P. Morgan and Walmart, on a panel titled, “Thinking Differently: The Changing Boardroom Conversation.” We had an interesting and candid dialogue on the changing role of boards and management teams amidst technology-driven seismic shifts in consumer behavior.
Here are two particularly important takeaways:
The need for an offensive – not simply a defensive – mindset
3A8A1354Tim spoke about the current challenges that corporate boards are facing and the need to balance the giving of insight versus oversight. Piggybacking on his comments, I discussed how in times like these of fast-paced disruptive innovation, boards and management teams must shift from a defense-only model, maintaining status quo core businesses, to also playing offense, taking risks, experimenting with new customer engagement models, and – above all – embracing technology. In regulated industries in particular, it’s all too easy to use regulatory compliance as an excuse, but the greatest risk of all is doing nothing.
The importance of shifting to new business models
In the face of these challenges, boards and management teams should not merely delegate social, mobile, and digital innovation to a designated “digital director” on the board or to IT or a social media marketing team and think they have it covered. Boards must instead personally understand and use these emerging technologies in order to experience the world as their customers and employees do, and think not only about creating Twitter pages, for example, but potentially entirely new business models spanning multiple channels that appeal to today’s always-connected, social customer over time.
To read more about KPMG’s conference, check out the full program.
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Advisor use of social media matures, regulatory requirements are still a challenge: Recap from #SIFMAsocial

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Last week we attended the sold out SIFMA Social Media Seminar in New York City, a one-day event in the heart of Wall Street that brings together experts from a variety of business roles including marketing, business, compliance, and legal, as well as financial advisors, to discuss the expanding use of social media for financial services.

Major themes from the conference included:

  • The financial services industry has greatly advanced its use of social media in recent years, but there is still a lot of opportunity for social media to impact the business.

  • Interpreting regulatory and compliance requirements continues to be a challenge for firms and financial professionals.

  • Social media can be a truly valuable tool for advisors and branches to build their business, especially if they leverage it to expand their client base in a target niche.

Michael Lock (President & COO at Hearsay Social, @michaelhlock) kicked off the seminar with a lively perspective on technology trends and how consumer expectations are changing. In his session, Michael shared some ways in which financial professionals are using social media to build customer relationships. Harking back to a lesson familiar for every good salesperson, he reminded us that social media is about listening first. OnWallStreet author Andrew Welsch (@AndrewWelsch) published a great recap of Michael’s session here.

Here are more key takeaways from the event:

Updates from the social networks

The next session was a panel moderated by Mike White (CMO at Raymond James, @MikeRJF) with financial services industry leaders from LinkedIn, Twitter, and Facebook. Mike set the stage with learnings from a roundtable conversation that a group of SIFMA members had shared the day before: “We’ve come a long way over the past few years, but there is still a lot of opportunity,” he said, however, noting “the importance of not looking to social media as a standalone panacea. […] The most successful advisors and firms are looking at it as a piece of an overall marketing program.”

The following conversations from the respective social networks followed these same themes. Some of their insights included:

  • Brad Murphy (Client Partner, Financial Services Vertical at Facebook) described how the Facebook platform has evolved over the past 18 months. Although many business owners have seen a decrease in the organic reach of their pages, Facebook has greatly expanded its targeting ability with its evolving advertising program. Brad specifically referenced new data partnerships, such as with Acxiom, that help financial professionals reach exactly the audience they’re targeting.

  • Jennifer Grazel (Head of Category Development, Financial Services at LinkedIn, @jgrazel) provided insight into the core pillars of focus for LinkedIn: “identity, network and knowledge.” She also explained how the network’s continued push into content publishing and sharing is intended to support the “knowledge” pillar. In addition, she said that LinkedIn’s acquisition of Bizo will support the company’s plans to enable marketers to run nurture programs.

  • Michael Wong (Head of Financial Services at Twitter, @mw145) said that when it comes to content, timing and quality is more important than frequency and volume, citing Vanguard and Motley Fool as two organizations that excel at sharing good content during volatile times. He also predicted that, going forward, the focus will be on developing a mobile experience for end users as well as better analytics to measure effectiveness of campaigns and activity.

Static vs. dynamic content and other regulatory requirements

In the second panel, “Navigating The Web of Social Media Regulation,” Rick Apicella (Morgan Stanley Wealth Management), Thomas Selman (FINRA), Doug Preston (Bank of America Merrill Lynch), and Melissa Callison (Charles Scwhab) discussed the regulatory requirements that govern social media use.

Selman, who is responsible for advertising policy at FINRA, summarized how the regulatory authority thought about social media. They “took a principles-based view of social media,” he said, in order to write regulation that would not have to be changed every time the technology changed. And they “tried to leverage existing rules and terminology” wherever possible instead of introducing new terms. This approach lead to FINRA Regulatory Notices 10-06 and 11-39, which directly address social media.

Supervision and review requirements for social media address two key content categories: “static” content and “dynamic” content. FINRA requires that all static content be pre-reviewed before it is published, and therefore what is categorized as dynamic or static is often a hot topic in conversation amongst legal and compliance professionals.

At this event, Thomas Selman notably commented that “a case can be made for why a tweet is considered dynamic content.” Somebody from the audience even asked him to repeat this because this opinion was in contrast to other interpretations of the regulation that we’ve heard.

“Content is king, and context is queen”

After spending the first half of the day discussing mostly advisor use of social media, the panel “Social Media Strategy & Use at the Corporate Level” specifically zeroed in on corporate and brand use of social media.

Ruth Papazian (HD Vest Financial Services) moderated a discussion with Joe Corriero (Bank of America Merrill Lynch), Kraleigh Woodford (UBS Wealth Management Americas), Jon Pauley (Ameriprise Financial), and Melissa Socci (LPL Financial). This conversation kept coming back to the importance of content, with each team member describing how their respective organization sources, develops and distributes content.

It was especially interesting to hear how firms of different sizes deal with the challenges of creating social content. Joe Corriero, for example, said that Bank of America Merrill Lynch created a “social media newsroom,” which is a regular meeting bringing together all the disciplines (including research, marketing, legal and compliance) to brainstorm and plan their content timelines. And sometimes internal teams aren’t enough. For example, Melissa Socci explained that they occasionally turn to contractors to create additional content pieces like infographics for social media because their traditional, print-first content team doesn’t have quite the right skillset for that. With a much leaner team, Ruth Papazian and her team rely upon the integration of Trapit and Hearsay Social to curate a regular stream of social media content.

Kraleigh Woodford from UBS Wealth Management Americas pointed out that, in additional to the common adage “content is king,” “context is queen.” Kraliegh argued that “it’s the ‘why do I care’ factor” that leads to successful social content. Companies don’t have a shortage of content but they have to be thinking about what people want to consume through social media; feeding them the wrong content, like “linking to a 60-page report,” might not be the be the most effective strategy.

When it comes to a corporate presence and approach to social media in financial services, Melissa Socci said it best: “We are not social media marketing, we are marketing in a social media age.”

Social media strategies for financial advisors and client communication

In the second panel moderated by Mike White (CMO at Raymond James, @MikeRJF), five financial advisors representing Raymond James Financial, Wells Fargo Advisors Financial Network, Ameriprise Financial, LPL Financial, and Robert W. Baird & Co. shared some of their most successful social media strategies for enhancing communication with clients and prospects.

One theme that stood out? Each of the panelists has found success using social media a little bit differently–depending on their target clients, location, and team structure.

Evan Shear (Branch Manager with Raymond James Financial) uses social media to stay up with what is happening in the lives of his client. One anecdote he shared: he saw via social media that his client had lost a family pet, and so he sent a thoughtful sympathy card and gift. Fueled by what he learns through social media, according to Evan, this type of activity strengthens client relationships and builds deep client loyalty.

Charles Camilleri (Financial Advisor with Ameriprise Financial Services) uses social media to stay top of mind and to get the word out to his extended network that he is a financial advisor. Within a week of using social media for business, Charles got a new client referral from a friend of a friend, simply due to the fact that they learned Camilleri’s profession after connecting on LinkedIn.

In addition to the financial advisors on the panel, Dan Swift (Director of Financial Services at LinkedIn, (@danjswift) shared insights into social selling and some of the exciting functionality that LinkedIn Sales Solution provides to help financial professionals. Dan described how LinkedIn Sales Navigator solves for the “now what?” feeling that often accompanies users who are new to social media. He recently spent three months on the road training 160 advisors on social selling with LinkedIn, and they saw some amazing success. Within that same time period, a subset of those financial professionals won over $100 million in new investable assets–impressive ROI for a program that was just getting started!

With the various success stories that can be correlated to a social presence, we think financial professionals would do well to take advice from one other participant on the panel, Jamie Cox (LPL Financial): “You don’t have time to not be on social media.” We would agree.

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Technology and collaboration key to restoring consumer confidence and trust in financial markets: Recap from the 2014 FINRA Annual Conference

finra stock photoOnce again Hearsay Social was proud to participate in the 2014 FINRA Annual Conference in Washington, D.C.

Regulators from FINRA, the U.S. Securities and Exchange Commission (SEC), and the Financial Conduct Authority (FCA) joined financial leaders from leading organizations including AXA, Wells Fargo, LPL Financial, and Barclays to discuss the evolving economy and financial markets.

In his opening remarks at the conference, Richard Ketchum (Chairman and CEO, FINRA) echoed the same themes discussed at the SIFMA Compliance and Legal Society event in Orlando earlier this year: namely, the need to restore investor confidence and trust in the securities industry.

Furthermore, the Economic Confidence Index (ECI), which averages how Americans rate current economic conditions with their expectations for the future, shows that things are not improving quickly. One in five Americans graded the U.S. economy as weak, according to recent figures, while 34 percent rated it as poor. Additionally, while 39 percent of Americans said the economy is improving, another 56 percent said it is getting worse. Although the markets have recovered, people haven’t.

That’s hard to believe considering that it’s been seven years since the credit crisis affected housing markets and six years since the 2008 market plunge. The last market collapse, however, is still vivid in our collective memories, creating a crisis of confidence among investors.

How are we to turn the tide, and what is the prescribed solution to restore trust in the securities market? The answer may lie in embracing new technology and collaboration.

The new age of regulation puts the investor first, and FINRA is determined to be a key engine in restoring trust in the securities markets. According to Ketchum, today FINRA’s risk-based exam program is more data-driven: they are collecting more information electronically weeks before a scheduled exam and using available technology to better manage and analyze the data.

Using a Risk Control Assessment (RCA) and regulatory intelligence in the “High Risk Broker Program,” FINRA is speeding up and improving the efficiency of its exams. To improve and promote investor confidence, FINRA focuses on a strong set of organizing principles:

  • To be data informed,
  • To be technology empowered,
  • To be responsive to change, and
  • To be capable of more quickly and effectively identifying and disciplining bad actions.

The Comprehensive Automated Risk Data System (CARDS) is an important next step to fulfill these principles and is designed to provide swift and responsive action.

“With the technologies that are now available to us,” explained Ketchum, “we can do things to transform our exam program in ways that haven’t been available to us before. And frankly, it would be unconscionable not to embrace these technological advancements to better fulfill our investor protection and market integrity mission.”

That said, the collection and management of data to identify trends and possible risks has been met with controversy and concerns regarding, costs, control and the security of such a large database. FINRA received approximately 800 comment letters about it.

Despite the controversy, it’s a step in the right direction for FINRA to be using the most advanced technology solutions, investing resources, staff, and time to restore investor confidence and trust in the markets.

I believe Ketchum when he says that they value member firm engagement and that their message and outreach for feedback is genuine and driven to “get it right.” I also believe that social media and networking activities by member firms will play a much larger role in improving and restoring the confidence that has been lost. Social is built on the core principles of authenticity and transparency–values that are key to rebuilding trust. A connected and trusted advisor is one that is open to share and provide guidance in times of uncertainty, helping clients navigate their financial resources to meet their objectives.

FINRA cannot do it alone, however, and it will require the collaboration and partnership of member firms and evolving technologies to get it right. As Ketchum states in the conclusion of his keynote presentation, “Our interests are aligned, and putting the investor first is a goal we should have in common. The investing public deserves nothing less.”

I agree.
Read Ketchum’s full comments from the FINRA Annual Conference and learn more:

Three social business takeaways from the SIFMA Compliance and Legal Society Annual Seminar

SIFMA-LogoLast week the compliance and legal community gathered in sunny Orlando for the SIFMA Compliance and Legal Society’s 46th Annual Seminar. At the seminar, compliance and legal professionals come together to discuss the significant challenges faced by the financial services community and to explore ways to address ongoing regulatory changes.

The event program was packed with over 65 topical panels and three general sessions including presentations from SEC Chair Mary Jo White, FINRA CEO and Chairman Richard Ketchum, and U.S. Attorney from the Southern District of New York Preet Bharara.

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Here we’ve assembled the three main takeaways as they relate to social business and compliance.

Enforcement and data security on the rise

I enjoyed hearing from SEC Chair Mary Jo White and FINRA CEO and Chairman Richard Ketchum, and was happy to hear that both groups are working together more, especially by enforcing actions and being proactive to address those that are operating outside of securities rules and regulations. Regulators at all levels are sending the industry a strong message by enforcing rules and regulations, deterring others to overstep those rules.

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U.S. Attorney Preet Bharara may have joked that infractions may not be to the extremes depicted in Martin Scorcese’s “The Wolf of Wall Street.” Infractions do need to be taken seriously, however, as regulators now mine big data for patterns and behaviors that could indicate criminal behavior. Regulators want to be more proactive about identifying risks that could lead to infractions, and now technology allows them to monitor activity and possible threats to data.

Bhara questioned the audience in his presentation by asking, if we hold institutions (and not just individuals) accountable for misconduct, does the enforcement action against a similarly situated company make a difference to their approach to security? I think it does, and I think it will.

At the “Core Compliance Programs and Practices” session, Kevin Goodman, National Associate Director of the Broker-Dealer Examination Program of the SEC, warned that conversations with executives of firms will be deeper than they have been in the past. Executives will need to know about their policies and training and be better prepared to discuss with the SEC the top five risks of the company and what they are doing to address them.

To address these risks, the panel emphasized maintaining, updating, and providing training on policies and procedures. Given the 200+ rules in place and a constant stream of guidance and notices, compliance has a challenging task to keep track of it all.  To stay ahead, firms will need to have the right tools and ensure they are documenting and keeping up with the new rules and regulations.

Technology is part of the problem and the solution

One of the biggest challenges I observed? The industry is struggling to keep up with advances in technology to monitor and control activity.

Ironically, technology seems to be both the issue and the solution when it comes to addressing these new challenges and risks. With the proliferation of employee-owned mobile devices in the past few years, risks have only increased. Firms today need to have “bring your own device” (BYOD) policies and procedures to address the growing use of smartphones and tablets for both personal and business applications. Mobile adoption introduces additional threats including insecure Wi-Fi access, bluetooth discovery and risks of cloud storage. How prepared is the industry to address these new risks?

Business is moving much faster now and technology is providing individual investors with easier access to information. As a result of the increased volume of information and speed to market, it’s becoming a bigger challenge to supervise and provide oversight.

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At the “Ask FINRA” panel on Tuesday morning, Susan Axelrod, EVP of Regulatory Operations at FINRA, shared that the industry is addressing this concern by hiring more people with tech backgrounds that understand the technology and risk analytics. Carlo DiFlorio, EVP of Risk and Strategy at FINRA, added that technology allows them to be more focused with the types of searches and surveillance that they can and need to do. Similar to the SEC, FINRA is now proactively scanning to identify new risks, new threats, and new ways to protect the market and consumers.

Also on the panel was Ben Indek, Partner at Morgan, Lewis, & Bockus, LLP, who shared the unfortunate truth that the industry perception continues to be this: if something goes wrong, everyone asks, “Where was compliance?” Often it is not compliance at fault, but instead a lack of surveillance tools to keep up with the quickly moving technology.

Time to revisit social media guidelines

At the “Social Media Emerging Issues, Innovation and Ongoing Challenges” session, industry compliance experts from Charles Schwab, Wells Fargo Advisors, and Fidelity Investments joined representatives from SIFMA and FINRA to discuss the current state of social adoption and challenges.

For FINRA, social networking continues to be in “retrospective review.”  The sweeps conducted last year were light on data to provide a full picture of social use and adoption in the industry. According to Tom Selman, EVP of Regulatory Policy at FINRA, of the the 23 firms they contacted, only 15 said they allowed registered representatives to use social media. Those firms that had allowed social were taking a very conservative approach towards adoption with very limited use of social platforms (mainly LinkedIn) and sharing of content. Of the 15 firms using social media, only one had any interactive activity to share. The relative sample was quite small with little interaction to comment on or regulate. All firms were using a third-party middleware provider to protect, monitor and supervise usage and to scrape social content for any infractions or red flags.

The biggest concern uncovered during the sweeps, according to FINRA, had to do with records maintenance and the ability of firms to reproduce easy-to-interpret records of social activity. For example, they described a submission from one firm that provided data in multiple different folders, including one folder with posts, one folder with images and a third that included the post with comments and responses. FINRA was challenged to tie these activities together for a complete picture of the social activity. In my opinion, the sweeps were unlikely to cover many gaps because firms under review were being very conservative in their approach towards social media.

To their credit, FINRA is considering reconvening the Social Networking Task Force that was instrumental back in 2009 in helping develop Regulatory Notice 10-06. According to Selman, the task force could help revisit the agency guidelines. I find this very encouraging, especially now that social has been available to the industry for nearly four years and the needle has only moved slightly in adoption, at least at the wirehouse level. Regulations do need to be updated and rewritten to reflect the current state of financial services and not an interpretation of existing rules that date back to the early part of the 20th century.

In conclusion, I am hopeful that FINRA, the SEC and SIFMA will continue to focus on technical advancements and take a proactive approach to address the needs of member firms and their clients. What is encouraging is that there is an understanding of both the threats and opportunities that technological advances present and that the industry is collaborating to address them.

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Hearsay Social at the SIFMA Compliance and Legal Society Annual Seminar: Deaglan McEachern (@DeaglanM), Sanjiv Baxi (@SanjivBAXI), and Meagan Herfkens (@mherf).

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4 ways Wall Street will regain the trust of Main Street: Takeaways from SIFMA Annual, part 1

It’s been over 5 years since the financial crisis, yet do you trust financial institutions the same way you did before 2008? Are you confident that Wall Street and the folks who represent the firms in banking are being transparent and working in your best interest?

These are the questions that were being asked and addressed last week at the SIFMA Annual Meeting in New York City.

Representing 575 member firms and over 800,000 employees in the securities business alone, SIFMA (Securities Industry and Financial Markets Association) brings together hundreds of securities firms, banks, and asset managers to promote job creation and economic growth.

At last week’s Annual Meeting, almost 1,000 financial services executives from America’s top banks congregated to hear from thought leaders, practitioners, and rule makers including former President Bill Clinton, Senator Judd Gregg, SEC Chair Mary Jo White, FINRA Chairman and CEO Richard G. Ketchum, and former Governor Jeb Bush.

The theme of the conference, “Helping Americans Succeed, Helping Main Street Prosper,” placed the spotlight on how financial institutions can restore the public’s trust and confidence in the industry.

So how will Wall Street and its financial institutions regain the trust of Main Street? Judd Gregg, SIFMA’s CEO and former U.S. senator, laid out 4 practices that SIFMA and its members are driving:

1. Putting clients first

“It’s the start of open dialogue and clear expectations, both of which build trust and are critical in helping clients determine their financial goals, then reach them through appropriate investments,” said Chet Helck, SIFMA chairman and CEO of Raymond James Global Private Client Group.

It is up to SIFMA members, he noted, to earn back trust and have the discipline to uphold standards by which they operate, as well as identify those who aren’t. He also shared with the audience that Raymond James Financial, when launching or changing new programs and offerings, always asks, “how does this affect our clients?”

Mary Jo White, chair of the SEC, added that the role of the SEC also facilitates this through regulations and enforcement of those regulations focused on transparency and fraud prevention.

2. Investing in America

The financial services industry plays a key role in the path to prosperity for Americans, said Jim Rosenthal, COO of Morgan Stanley, so the industry must continue to provide the foundation for growth and prosperity by funding small businesses through an efficient lending process.

From his own experience in meeting people from all walks of life as part of the Clinton Global Initiative, President Clinton said that one can’t underestimate the difficult position the majority of people face. Clinton offered specific ideas that the industry can help, including micro-credit lending to fund new business ideas, training, and new job growth.

Clinton also highlighted the need to target those with requisite skills and get them trained to prepare for the “next generation economy.”

3. Driving transparency and cooperation

It’s critical to transform the industry to be safer and more transparent to the general public.

To do this, regulations and enforcement help, but as Governor Jed Bush explained, it’s critical to “simplify the rules and make them more clear” for both the financial institutions’ teams who need to implement and abide by them and the general public.

In addition to transparency, cooperation is key. President Clinton highlighted that we live in one of the most interdependent ages in history: there has never been greater trade, travel, and technology than there is today. America and the financial services industry, he said, should focus on cooperation to drive shared prosperity. For example, large financial institutions and banks should find common causes with community banks who want to make good loans to individuals and businesses.

4. Educating on the importance of the market economy and financial literacy

Education campaigns, according to President Clinton, should focus on the basics:

  • Discuss issues or topics that are “self-evident”

  • Communicate “how we can help you” with specificity

  • Share how free enterprise works

  • Explain the rules and intent of Dodd-Frank

  • Provide examples of how “we think you can improve upon your current situation”

One program that highlights SIFMA’s commitment to educating the younger generation is its annual Stock Market Game, which helps elementary school students learn first-hand about the stock market.

Overall, the conference framed several of the challenges the industry and America faces, and offered many perspectives on potential solutions with initiatives like the one above to make SIFMA’s goals a reality.

One other practice I would offer to enhance and accelerate those above would be for financial services firms to invest in social media technology and training for its advisors, broker-dealers, and wealth managers to better reach Main Street. To her credit, when SEC Chair Mary Jo White was asked by session moderator, Peter Cook, Chief Washington Correspondent and Host of “Capitol Gains” for Bloomberg Television, whether or not she was a person who uses social media, she replied, “I think you have to be a social media person today to some degree.”

I couldn’t agree more.

Social media is a key way of driving transparency, empowering the public, and re-establishing trust. It can enhance how businesses reach their clients and give firms a personality.

How exactly? Stay tuned for part 2 of my takeaways and recommendations from SIFMA Annual.

SEC embraces the use of social media for public companies to broadcast material nonpublic information

As advocates for social media, Hearsay Social is pleased with the recent Securities Exchange Commission Release noting that publicly held companies may release material non-public information on social media platforms in compliance with Regulation Fair Disclosure (Reg FD) provided that certain steps are taken prior to such disclosure:
(i) advance notice of the type of disclosures that will be made
(ii) the specific social media platforms that will be used (including the channel’s address would be a good practice) so that the public has an opportunity to use such channels to obtain the information
The SEC stance is in line with the reality of state of communications today. Majority of shareholders are using social media today to access real-time financial information, as such, why wouldn’t they also learn about material information of their investments on such forums? Provided that companies and their executives follow their internal communication rules/policy, provide their investors advance notice and a chance to subscribe to or join the right company social media platforms, then shareholders should be able to obtain material non-public information on these forums.
With use of a platform such as Hearsay Social, Companies can now publish pre-approved corporate communications to the public across all social media platforms with the ability to monitor and retain such communication.

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.

Understanding new social media guidelines from the FTC Dot Com Disclosures

The Federal Trade Commission (FTC) recently issued a long-awaited update to its 2000 Dot Com Disclosures guide, taking into consideration the new online mediums for advertisers, specifically social media. The basic fundamentals of the consumer protection rules for advertisements remain the same, even for social media: advertisements must be truthful, not misleading, and proper disclosures made.

How do these guidelines apply to social media?

There are several important implications for advertisers to consider. First and foremost, the guidelines state that clear and conspicuous disclosures must be posted to avoid deception. If space is limited for the medium (i.e. Twitter) then the ad should be modified or not be made. Secondly, guidelines need to avoid using hyperlinks, but when necessary, they must be clearly marked. Finally, regardless of space constraints, advertisers are required to include disclosures alongside their ads.

Guidelines for posting disclosures

This is an example of a hidden disclosure with an unmarked hyperlink:

Example of a Facebook Page post not following FTC guidance.

If following proper practice, a brand should display its social media advertising disclosures prominently and in close proximity to the claim:

Example of a Facebook advertisement following FTC guidance.

Guidelines for hyperlinks and scrolling

If a hyperlink is necessary, then make sure it is specifically named and conspicuously placed. For example, in this tweet, the celebrity endorsing this product has clearly stated that they are a spokesperson for the product and that the pertinent information associated with the tweet can be found in the corresponding Bit.ly hyperlink:

@FamousCeleb: I’m a spokesperson for BarLite and it changed my life. More information: Bit.ly/BarLite #liteonlife

In the case of a long text, make sure the disclosure is visible near the claim. If the claim must be placed below a long screen of text, be sure to hyperlink the claim or disclosure within the text at the top of the screen.

Guidelines for pop-up disclosures

Pop-up disclosures are best when the disclosure is displayed before the decision to purchase is made.

For example, within the shopping cart experience on the advertiser’s website, the customer must be prompted to read the disclosure and confirm they have done so.

Ultimately, the advertiser needs to do everything they can to ensure that the consumer is aware of and has read all of the necessary disclosures associated with the product.

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.