For anyone reading this post, you appreciate the value of social media. It looks as though FINRA is finally prepared to do so as well.
FINRA recently proposed changes to its rules governing communications with investors. In doing so, FINRA has proposed easing its requirements of pre-approval for a broker-dealer’s use of social media. Chief among the proposed changes would be the authorization of registered representatives communicating with clients via social media without a supervisor’s prior approval. Without pre-approval, a registered representative could engage in interactive , real-time communications with customers via a social media site.
Assuming this proposal is adopted, this is a positive step for FINFRA. Nevertheless, I think that broker-dealers and registered representatives still must be wary of using social media to communicate in real-time with their clients. First, the member firm will surely still be required to maintain copies of these communications consistent with its record retention obligations. Keeping track of the potential volume of such communications creates a record-keeping nightmare. Second, broker-dealers should consider restricting their registered representatives from making investment recommendations through interactive social media because of suitability concerns. The risk of an investment recommendation being disseminated via social media is that anyone accessing that source could argue that it was an investment recommendation made by the firm and pursue a claim against the firm in the event of a loss.
In my experience defening member firms and registered representatives, the types of claims asserted are only limited by the creativity of the lawyers. Do not be a victim. If FINRA specifically endorses inter-active communciations via social media without pre-approval, be certain that you have meaningful policies, procedures and protocols to maintain proper records and avoid open-ended recommendations to the public.