FINRA Rule 2210 and social media for small firms

FINRA has no separate social media rule. A post, a profile, a direct message and a brochure all fall under Rule 2210, the communications rule for FINRA member firms, and the rule sorts every one of them by who receives it, not by the app that carries it. A stand-alone investment adviser is not a FINRA member; its advertising runs under the SEC Marketing Rule instead.

The line between the first two is a count. Twenty-five retail investors within any 30 calendar days is correspondence; one more makes it a retail communication. A retail investor is “any person other than an institutional investor”, and institutional investors are a short list: the accounts described in Rule 4512(c), such as banks, insurance companies, registered investment advisers and any person “with total assets of at least $50 million”, plus government entities, qualifying plans with at least 100 participants, and FINRA members and their registered persons. Almost every follower a small firm has on a social network is a retail investor.

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A public profile or a post on an open page is made available to anyone who looks, which by our reading puts it over the 25-investor line on the day it goes up. A direct message to one client is correspondence. The same message sent to forty clients in a month crosses the line and becomes a retail communication. The table sorts six everyday cases the way we read the definitions; the entries are invented, and your procedures should say how your firm sorts its own.

A retail communication needs a registered principal's sign-off before it is used or filed, whichever comes first. In a firm with one or two principals, that means a named person reads each static post before it goes up, and the record shows who and when.

The rule then lists pieces that need no prior approval, though each must still be supervised and reviewed the way correspondence is. Two matter most on social media:

• Posts on an online interactive electronic forumReplies, comments and live exchanges in a thread. No principal signs them in advance; they are supervised after the fact.FINRA Rule 2210(b)(1)(D)(ii)
• Pieces that recommend and promote nothingAny retail communication “that does not make any financial or investment recommendation or otherwise promote a product or service of the member”: an office closure notice, a holiday greeting.FINRA Rule 2210(b)(1)(D)(iii)

Rule 2210 asks for no prior approval of correspondence. Instead, “all correspondence is subject to the supervision and review requirements of Rules 3110(b) and 3110.06 through .09”. Under 3110.06 a firm decides by risk how much to review before use; if it does not review all of it first, its procedures must provide for training, a record of that training, and “surveillance and follow-up”. How that review is run and evidenced is in FINRA Rule 3110 supervision for small firms. Institutional communications sit between the two: a principal reviews them under written procedures “appropriate to its business, size, structure, and customers”.

An approval queue keeps the principal's sign-off and the final version of a post together, which is what the record will need. The tools that do that are read against the rule in advertising review software.

FINRA's guidance on social networks is Regulatory Notice 10-06, “Guidance on Blogs and Social Networking Web Sites”, issued January 25, 2010. It splits what a firm puts on a network in two. Static content is the part that stays put: in the notice's words, it “remains posted until it is changed by the firm or individual who established the account on the site.” Interactive content is the conversation underneath.

On interactive content the notice says firms “are not required to have a registered principal approve these communications prior to use”, and adds: “Of course, firms still must supervise these communications.” The current rule text makes the same point through the online interactive forum exception above. A rep who answers a question in a comment thread therefore needs no sign-off first, but the reply lands in the review queue like any other message.

Posts written by someone else

Clients and strangers can post on a firm's page too. Notice 10-06 has a section on third-party posts that opens from the position that “FINRA does not consider a third-party post to be a firm communication with the public”, and then sets out when one can become the firm's own. This guide does not summarise that second half. Read the section in the full notice on finra.org and settle your policy on other people's posts with your compliance counsel before anyone at the firm responds to one.

Approval happens inside the firm. Filing is a separate step that sends the piece to FINRA's Advertising Regulation Department, and paragraph (c) lists which pieces go, and when.

A small brokerage that sells mutual funds should watch the third row: a post that promotes a specific fund or fund family is filed within 10 business days after it first runs. The rest of a small firm's FINRA calendar is mapped in FINRA compliance for broker-dealers.

The content standards apply to every class, including a one-line reply and a direct message. The baseline is two sentences long:

Short formats make both easy to break. A character limit cuts the risk sentence first, and a quick reply in a thread is written faster than any brochure. The lines below are invented, read against the rule the way we read it; your principal makes the call on your own.

Projections get their own paragraph. Communications “may not predict or project performance, imply that past performance will recur or make any exaggerated or unwarranted claim, opinion or forecast”, with listed exceptions. FINRA's rule text now includes an exception for projections and targeted returns, subject to conditions: the firm adopts written policies reasonably designed to keep the piece relevant to “the likely financial situation and investment objectives of the intended audience”, and gives enough information for that audience to understand the criteria and assumptions behind the figure and its risks and limitations. A social post rarely has room for that, so check with your compliance counsel before any target or projection appears in one.

Notice 10-06 puts the record first. A firm that lets its people use social media for business “must first ensure that it can retain records of those communications”, and a broker-dealer “must retain those electronic communications that relate to its ‘business as such.’” That phrase comes from the SEC's broker-dealer record rule:

Rule 2210 then says what the file for each retail and institutional communication holds, and keeps it for the Rule 17a-4(b) period “in a format and media that comply with SEA Rule 17a-4.” What that format means for storage is covered in Rule 17a-4 and WORM storage.

• The piece and its dates“A copy of the communication and the dates of first and (if applicable) last use”. For a static post, the day it went up and the day it came down.FINRA Rule 2210(b)(4)(A)
• The approval“The name of any registered principal who approved the communication and the date that approval was given”.FINRA Rule 2210(b)(4)(A)
• The source of any figureThe source of any statistical table, chart or graph the piece uses.FINRA Rule 2210(b)(4)(A)
• Correspondence, under its own rulesDirect messages and other correspondence are kept under “Rules 3110.09 and 4511”, with the names of who prepared and who reviewed them ascertainable. See FINRA Rule 4511.FINRA Rule 2210(b)(4)(B); 3110.09

Capturing posts, comments and messages from the networks themselves is a job for an archive, not a screenshot folder. The vendors whose own pages name the networks a small firm uses are read against these rules in social media archiving software.

Advisers who post on the same networks answer to a different rule. The SEC Marketing Rule guide covers it in full; the card below sets the two side by side on the four points a small firm asks about first.

A firm registered both ways keeps both sets of duties. On records, the adviser rule accepts a broker-dealer record that is “substantially the same as the book or other record required” under it, which is a question to settle with your compliance counsel, not one to assume. Advisers can test a single piece with the Marketing Rule ad review checklist.

Put together, the rule and the notice give a small firm six steps, in this order. Firms that want the approval queue, the archive and the review log in one system can start from broker-dealer compliance software.

This guide explains the rule; it is not legal advice. Your compliance counsel should check your procedures against the full text on FINRA's Rule 2210 page.