RCA - June 1997 - New Rule Applies to Telemarketing Scripts

In December 1996, the NASD adopted Conduct Rule 2211 to further protect customers from improper telephone solicitations regarding securities. The rule imposes time limitations and disclosures for brokers/dealers who use telemarketing (see "Tougher NASD Telemarketing Rules Take Effect" in the March 1997, NASD Regulatory & Compliance Alert). The new rule applies to both extemporaneous telemarketing efforts and situations where callers use a script.

Since the adoption of this standard, members have raised several questions with respect to telemarketing scripts. Questions have generally fallen into three categories: 1) what must be disclosed, 2) where the disclosures should appear, and 3) when the rule applies.

Prompt, Clear, And Conspicuous Identification
Scripts must provide prompt, clear and conspicuous identification by the caller of the following information:

  • Their identity,

  • The NASD member firm name,

  • The address or phone number of the branch office or OSJ in which the caller may be contacted, and

  • That the purpose of the call is to solicit interest in a security.

To comply, these disclosures should appear at the beginning or in the introductory portion of the script and prior to any detailed discussion of the security being offered.

The address information must be sufficiently specific that the customer would be able to contact the caller. Members may use either the telephone number or the exact street address. Location specific language such as, "I'm calling from ABC Brokerage at the corner of Main and Columbus Streets downtown," is also acceptable.

The caller must state that the product being offered is a security or that the purpose of the call is to discuss securities. This disclosure helps prevent confusion as to the nature of the product or service being offered.

Exemptions May Apply
The disclosure requirements of Rule 2211 do not apply to a script used by a registered representative to call existing clients who have active accounts under his or her control to solicit more sales of the same security or of a different security. Similarly, telemarketing scripts are exempt from the disclosure requirements when used by unregistered sales assistants, at the direction of a registered representative, to maintain and service certain existing accounts. Such accounts must be both active and under the control of the registered representative who is directing the calls to be made. Of course, the unregistered person may not solicit the sale of securities in any fashion during the call.

Also, the disclosure requirements may be waived from a script when a registered representative directs a registered sales assistant to call existing clients who have active accounts under the control of the directing representative for the purpose of soliciting sales.

The NASD reminds its members that telemarketing scripts are sales literature and must also meet the approval, record keeping, filing, and content requirements of Conduct Rule 2210. Members with questions regarding telemarketing scripts are invited to call the Advertising Regulation Department at (202) 728-8330.