Frequently Asked Questions About Advertising Regulation
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C.1. Filing Requirements
C.2. Filing Exclusion for Non-Material Changes to Previously Filed Retail Communications
C.3. Filing Exclusion for Templates
C.4. Non-Promotional Communications New
C.5. Article Reprints
C.6. Social Media Posts in Online Interactive Electronic Forums
D.1. Disclosure of Expense Reimbursement Arrangements in Mutual Fund Performance Advertising
D.3. Provision of Related Performance Information
D.4. Usability Study and Focus Group Communications
D.5. Use of Hyperlinks in Electronic Communications New
D.6. Internal Rate of Return (IRR) New
D.7. Prohibition on Predictions or Projections of Investment Performance New
FINRA Rule 2210 Interpretive Guidance
BLOCK: Advertising Regulation - Interpretive Guidance FAQ
A.1. Institutional Communications
- A.1.1. Q. If a firm distributes an institutional communication to intermediaries that fall within the definition of "institutional investor" and labels the communication for use only with institutional investors, and an intermediary subsequently distributes the communication to retail investors, is the member then required to treat the communication as a retail communication?
- A. Unless the firm becomes aware that the intermediary has distributed the communication to retail investors, or the firm has not adequately labeled the communication, the firm will not be required to treat the communication as retail. FINRA Rule 2210(a)(3) defines "institutional communication" as "any written (including electronic) communication that is distributed or made available only to institutional investors, but does not include a member's internal communications." FINRA Rule 2210(a)(4) (the definition of "institutional investor") states in part that "No member may treat a communication as having been distributed to an institutional investor if the member has reason to believe that the communication or any excerpt thereof will be forwarded or made available to any retail investor."
For example, a broker-dealer that receives an institutional communication from a mutual fund underwriter is responsible for assuring that its associated persons do not forward the communication to retail investors. The "reason to believe" standard is not intended to require a mutual fund underwriter to audit recipient broker-dealers' use of institutional communications.
Assuming a firm adequately labels an institutional communication as being for institutional use only, the firm would not have reason to believe, absent other facts, that the communication will be distributed to retail investors. However, if the recipient broker-dealer informs the fund underwriter that it intends to distribute the communication to its retail customers, or the fund underwriter otherwise becomes aware of this practice, the fund underwriter must either treat the communication as a retail communication going forward, or cease distributing institutional communications to the recipient broker-dealer until it reasonably concludes that the broker-dealer has adopted appropriate procedures to prevent redistribution.
- A.1.2. Q. FINRA Rule 2210(a)(3) defines "institutional communication" to exclude a firm's internal communications. Does "internal communication" include training and educational material prepared for use with registered representatives of affiliated broker-dealers?
- A. No. "Internal communication" refers to communications within a firm. If a firm uses material to train or educate registered representatives of other broker-dealers (whether affiliated or unaffiliated), the material would be considered an institutional communication.
B. Principal Approval
B.1. Third Party Research Reports
- B.1.1. Q. If a firm distributes only to institutional investors a third-party research report that does not qualify as an independent third-party research report pursuant to FINRA Rule 2241(a)(3), is the firm required to have a registered principal or supervisory analyst approve the report prior to distribution?
- A. No. A third-party research report that is distributed only to institutional investors as defined in FINRA Rule 2210(a)(4) is considered an institutional communication under FINRA Rule 2210(a)(3). FINRA Rule 2210(b)(3) permits a firm to distribute an institutional communication without having a registered principal approve the communication prior to distribution, provided that the firm establishes and implements certain written procedures for the supervision and review of such communications.
FINRA Rule 2241(h)(1) requires a registered principal or supervisory analyst to review for compliance with the applicable provisions of Rule 2241(h) and approve third-party research reports distributed by the firm unless the report meets the definition of "independent third-party research report."1 However, this rule is not intended to require registered principal or supervisory analyst approval of a third-party research report that meets the definition of institutional communication. Accordingly, a firm may supervise such a report in the same manner as any other institutional communication pursuant to FINRA Rule 2210(b)(3).2
B.2. Business Development Companies
- B.2.1. Q. Does a Series 26 registration (Limited Principal - Investment Company and Variable Contracts Products) qualify a principal to approve a retail communication concerning a BDC?
- A. No. A BDC is not registered as an investment company under the Investment Company Act of 1940. Accordingly, the Series 26 registration does not qualify a principal to approve a retail communication concerning a BDC. To approve a retail communication concerning a BDC, the registered principal must possess either a Series 24 (General Securities Principal), a Series 9/10 (General Securities Sales Supervisor) or a Series 39 (Limited Principal - Direct Participation Programs) registration, if the BDC is structured as a direct participation program as defined in NASD Rule 1022(e)(2).3
B.3. Questions concerning principal approval of non-promotional communications (see Section C.4.) and for social media posts in online interactive electronic forums (see section C.6.).
C. Filing Requirements and Filing Exclusions
C.1. Filing Requirements
- C.1.1. Q. Is a firm required to file with FINRA a retail communication concerning a business development company (BDC) that is registered under the Securities Act?
- A. Yes. BDCs fall within the definition of direct participation program under FINRA Rule 2310(a)(4). Accordingly, firms must file with FINRA retail communications concerning BDCs that are registered under the Securities Act within 10 business days of first use or publication pursuant to FINRA Rule 2210(c)(3)(B).
- C.1.2. Q. FINRA Rule 2210(c)(3)(E) requires a firm to file within 10 business days of first use or publication retail communications concerning any security that is registered under the Securities Act of 1933 and that is derived from or based on a single security, a basket of securities, an index, a commodity, a debt issuance or a foreign currency (registered structured products). What types of products does this filing requirement cover?
- A. While it is not possible to list all registered structured products, examples include exchange-traded notes that are not registered under the Investment Company Act but are registered under the Securities Act, registered reverse convertibles, registered structured notes, registered principal protection notes, and any other registered security that includes embedded derivative-like features. See Regulatory Notice 12-03 for some examples of registered structured products.
The purpose of this filing requirement is to have firms file with FINRA retail communications about structured products that are registered under the Securities Act. It is not intended to create a duplicative requirement for retail communications that are already subject to filing, such as retail communications concerning mutual funds, closed-end funds, exchange-traded funds that are registered under the Investment Company Act, variable insurance products, direct participation programs or collateralized mortgage obligations.
While this filing requirement applies to retail communications concerning registered structured products, it does not apply to issuer-prepared prospectuses, including issuer-prepared free-writing prospectuses that are filed with the SEC.4
C.2. Filing Exclusion for Non-Material Changes to Previously Filed Retail Communications
- C.2.1. Q. If a firm has previously filed a retail communication and then decides to use the same communication in a different format, must the firm refile the communication as it appears in the new format?
- A. No. FINRA Rule 2210(c)(7)(A) excludes from filing retail communications that previously have been filed with FINRA and that are used without material change. FINRA would not consider revising a retail communication to appear in a different format to be a material change, provided that the content has not materially changed. For example, if a firm has previously filed a retail communication in the format that it appears on a desktop or laptop computer, and the firm is redesigning the presentation to appear on a tablet or smart phone, the firm would not have to refile the version that will appear on a tablet or smart phone.
- C.2.2. Q. What if a firm uses responsive Web design technology5 to deliver a retail communication in different formats depending on the device used by a customer? Must the firm file each version of the retail communication to show how it will appear on each device?
- A. No. For the same reasons set forth in the answer to the previous question, FINRA would not consider delivery of the same content in a retail communication in different formats using responsive design technology to be a material change to the communication. Accordingly, a firm would only have to file the retail communication once.
- C.2.3. Q. If a firm previously filed a retail communication that was initially distributed in print form, and the firm later decides to post the same communication on its website, must the firm refile the website version of the retail communication with FINRA?
- A. No, provided that the content of the website version of the retail communication appears without material change from the previously filed print version.
- C.2.4. Q. If a firm changes the color scheme of a previously filed retail communication, must the firm refile the new version of the retail communication?
- A. No. FINRA would not regard merely changing the color scheme of a previously filed retail communication to be a material change to the communication.
- C.2.5. Q. Is a firm required to re-file retail communications concerning a mutual fund that changes its name, if the only changes to the previously filed communications are substitutions of the fund's new name for its old name?
- A. No. Assuming the fund has changed its name in any required filings with the SEC, FINRA would not consider merely changing the fund's name from previously filed retail communications concerning the fund to be a material change to the communications.
- C.2.6. Q. If a mutual fund passes its five-year or ten-year anniversary since inception, and a firm adds a new line to previously filed retail communications that present fund performance to show the fund's five-year or ten-year performance record as required by SEC Rule 482, must the firm re-file the revised retail communications?
- A. No. FINRA would not consider merely adding a fund's five-year or ten-year performance record as required by Rule 482 to previously filed retail communications to be a material change.
- Posted: 5/22/15
- C.2.7 Q. The SEC presumes that the use of the terms “adviser” or “advisor” in a name or title by a broker-dealer that is not also registered as an investment adviser, or an associated person that is not also a supervised person of an investment adviser, to be a violation of the capacity disclosure requirement under Regulation Best Interest. If a firm previously filed a retail communication with FINRA, but now needs to revise the communication to eliminate references to adviser or advisor in the firm’s name or an associated person’s title because of Regulation Best Interest’s presumption, would the firm be required to re-file the communication with FINRA?
- A. No. Provided that the only revisions to the previously filed retail communication are eliminating references to adviser or advisor in order to comply with Regulation Best Interest, the firm would not be required to re-file the communication. Under these facts, FINRA would not consider such revisions to be a material change.
- Posted: 5/20/20
C.3. Filing Exclusion for Templates
- C.3.1. Q. A firm acts as a principal underwriter of a mutual fund family, and each fund in the family offers multiple classes of shares. If the firm creates a separate fact sheet for each share class of every fund in the family, is the firm required to file every fact sheet with FINRA if the only differences between the fact sheets for each share class of a particular fund are a share class's sales load, fees and performance?
- A. No. FINRA Rule 2210(c)(7)(B)(i) excludes from filing retail communications that are based on templates that were previously filed with FINRA the changes to which are limited to updates of more recent statistical or other non-narrative information. If a firm files fact sheets for all share classes of one fund in its fund family, and the share class fact sheets for other funds follow the same format in presenting sales load, fee and performance information, then the firm would not be required to file the fact sheet for each share class of the other funds in the family. Instead, pursuant to the filing exclusion for templates, the firm would be permitted to file the fact sheet for only one share class of each of the other funds in the fund family. The firm should indicate as part of its filing that it is relying on the filing exclusion for templates in cases where the firm is filing only one share class fact sheet for a particular fund.6
C.4. Non-Promotional Communications
- C.4.1. Q. Is a firm required to file with FINRA, or have a principal approve prior to use, a retail communication that is limited to market commentary concerning overall changes in the market on a particular day, or a discussion of economic news?
- A. No. General market commentaries or economic discussions that are not used for the purpose of promoting a product or service of the firm would be considered retail communications that do not make any financial or investment recommendation or otherwise promote a product or service of the member. See FINRA Rules 2210(b)(1)(D)(iii) and 2210(c)(7)(C).
- C.4.2. Q. Is a firm required to file, or have a principal approve prior to use, a retail communication that merely explains factual information regarding an individual retirement account, qualified plan or 401(k) account?
- A. No. These kinds of retail communications also would be considered to be non-promotional and thus not subject to the principal pre-use approval or filing requirements. See FINRA Rules 2210(b)(1)(D)(iii) and 2210(c)(7)(C).
- C.4.3. Q. Is a firm required to file, or have a principal approve prior to use, a retail communication that merely provides information to participants in an employee retirement plan as required by the Employee Retirement Income Security Act of 1974 (ERISA) or the current Department of Labor (DOL) rules under ERISA? For example, would a firm be required to file a retail communication that merely informs participants in an employee retirement plan of changes to the investment options that are available through the plan?
- A. In most cases, no. A firm would not be required to file or have a principal approve prior to use a notice distributed to plan participants that is required by ERISA or DOL rules, such as a notice that merely informs the participants of investment options that will no longer be available through the plan as of a particular date, and the investment options that will replace the eliminated options.
FINRA would consider such a notice to be a retail communication that does not make any financial or investment recommendation or otherwise promote a product or service of the member. However, if the notice also includes performance or other information that describes the investment objectives of the new investment options, or otherwise includes a headline or other graphic or text that promotes these new options, the firm would be required to file the notice, unless this information is required by ERISA or DOL rules.7
- C.4.4. Q. Is a firm required to file its stationery or the business cards of its associated persons?
- A. No. These communications are not subject to filing requirements.
- C.4.5. Q. Is a firm required to have a principal approve prior to use or file with FINRA a video posted online that does not recommend or promote a product or service of the firm? New
- A. No. In accordance with the exceptions in FINRA Rules 2210(b)(1)(D)(iii) and (c)(7)(C), a firm is not required to have a principal approve prior to use or file with FINRA a video posted online that does not recommend or promote a product or service of the firm, provided that the firm supervises and reviews such videos in the same manner as correspondence pursuant to FINRA Rules 3110(b) and 3110.06 through .09.8 For example, FINRA Rule 3110(b)(4) requires that a firm’s written supervisory procedures include procedures for the review of electronic communications related to the firm’s investment banking or securities business and such procedures must be appropriate for each firm’s business, size, structure, and customers.
C.5. Article Reprints
- C.5.1. Q. If a firm wishes to distribute to its customers a reprint of an article concerning a product subject to one of the filing requirements that appeared in an unaffiliated magazine or newspaper, and the only change that the firm made to the article was to add the firm's name and any disclosures necessary to meet applicable regulatory standards, is the firm required to file the article reprint with FINRA?
- A. No. If a firm merely adds its name to the reprint or adds disclosures required to make the reprint consistent with applicable regulatory standards, the firm is not required to file the reprint with FINRA pursuant to FINRA Rule 2210(c)(7)(I).9
C.6. Social Media Posts in Online Interactive Electronic Forums
- C.6.1. Q. Did the adoption of FINRA Rule 2210 change the exceptions from the principal pre-use approval and filing requirements for posts in the interactive electronic forum portions of social media as compared to the requirements under NASD Rule 2210?
- A. No, these exceptions have not changed. NASD Rule 2210 included as a communication category public appearances, which was defined to include participation in an interactive electronic forum. NASD Rule 2210 did not require principals to approve public appearances prior to use, and did not require firms to file public appearances with FINRA.
FINRA Rule 2210 treats interactive electronic forum posts, such as social media status updates, as retail communications rather than public appearances; however, the rule specifically excludes these posts from both the principal pre-use approval requirements and the filing requirements. See FINRA Rules 2210(b)(1)(D)(ii) and 2210(c)(7)(M). Accordingly, these exceptions have not changed with respect to posts on interactive electronic forums, despite the fact that they are no longer considered public appearances for purposes of the rule.10
D. Content Standards
D.1. Disclosure of Expense Reimbursement Arrangements in Mutual Fund Performance Advertising
- D.1.1. Q. If a firm presents mutual fund performance information in a retail communication, and the fund's expenses are subsidized through a fee waiver or expense reimbursement arrangement, must the firm disclose this arrangement?
- A. FINRA Rule 2210(d)(5)(A) requires retail communications and correspondence that present non-money market fund open-end management investment company performance data as permitted by Securities Act Rule 482 and Investment Company Act Rule 34b-1 to disclose, among other things, the fund's total annual operating expense ratio, gross of any fee waivers or expense reimbursements, as stated in the fund's prospectus fee table.
FINRA also permits a firm to present in performance communications the fund's subsidized expense ratio, as long as the firm presents both the gross and subsidized expense ratios in a fair and balanced manner. If a firm wishes to present a fund's subsidized expense ratio in correspondence or retail communications, the communication must disclose whether the fee waivers or expense reimbursements were voluntary or mandated by contract, and the time period, if any, during which the fee waiver or expense reimbursement obligation remains in effect.11
- D.1.2. Q. May a retail communication or correspondence concerning a mutual fund also include an “adjusted expense ratio” that illustrates the impact of interest and dividend expenses incurred by the fund from borrowings, repurchase agreements or investments in short sales?
- A. Yes. Because interest and dividend expenses incurred from borrowings, repurchase agreements or investments in short sales (whether directly or through investments in underlying funds) are considered fund expenses under generally accepted accounting principles, they must be included in a fund’s gross and net expense ratios disclosed in the prospectus fee table. Provided that the communication includes the fund’s gross and net expense ratios, it also may include an “adjusted expense ratio” that is the fund’s gross expense ratio reduced by any amounts contractually waived or reimbursed, and further reduced by interest and dividend expenses resulting from borrowings, repurchase agreements or investments in short sales. The communication should clearly label, and include a prominent plain English explanation of, the adjusted expense ratio, which should be presented separately from, and with no greater prominence than, the fund’s gross and net expense ratios.
- D.2.1. Q. Do the disclosure requirements regarding recommendations apply to a mutual fund portfolio manager's discussion of the fund's past performance (such as a manager's discussion that accompanies an annual or semi-annual report)?
- A. No. While these discussions must comply with FINRA Rule 2210, FINRA does not consider a portfolio manager's discussion of a fund's past performance to be a firm's recommendation of the individual securities included in the discussion.
D.3. Provision of Related Performance Information
- D.3.1. Q. FINRA’s letter to Edward P. Macdonald, Hartford Funds Distributors, LLC (“Hartford”), dated May 12, 2015 (“Hartford Letter”) interpreted FINRA Rule 2210 to allow Hartford to include Related Performance Information in communications concerning mutual funds that are distributed solely to institutional investors, as that term is defined in FINRA Rule 2210(a)(4), subject to enumerated representations and conditions. Provided that the presentation is consistent with the representations and conditions contained in the Hartford Letter, may a firm show Related Performance Information that is net of the fees and expenses of the advertised mutual fund?
- A. Yes. In condition 5 of the Hartford Letter, Hartford represented that the presentation of Related Performance12 Information will disclose performance information that is net of fees and expenses of Related Accounts13, or net of a model fee that is the highest fee charged to any account managed in the strategy. Condition 5 also stated that the fees and expenses of the registered fund that is the subject of the institutional communication will be prominently disclosed and this fund’s performance will reflect all fees and expenses. Condition 5 also stated that if the registered fund’s fees and expenses are higher than the Related Accounts’ fees and expenses, that fact will be disclosed.
A presentation of Related Performance Information that is net of all fees and expenses of the registered mutual fund that is the subject of an institutional communication, rather than the fees and expenses of the Related Accounts, is consistent with the intent of the Hartford Letter. The institutional communication must prominently disclose the fact that the Related Performance Information is shown net of the registered fund’s fees and expenses and, if applicable, that the registered fund’s fees and expenses are lower than those of the Related Accounts.
- D.3.2. Q. Is the Hartford Letter intended to allow the presentation of Related Performance Information in an institutional communication concerning an actively managed exchange-traded fund (“ETF”) that is registered under the Investment Company Act of 1940?
- A. Yes. A firm may present Related Performance Information in an institutional communication concerning an actively managed ETF, provided that this presentation is consistent with the representations and conditions contained in the Hartford Letter.
D.4. Usability Study and Focus Group Communications
- D.4.1. Q. If a firm distributes a communication solely for the purposes of recruiting individuals who might be part of a group to provide feedback or participate in a usability study (through a focus group or otherwise), or solely for the purposes of communicating a “blind” or anonymous survey, must the firm disclose its member name under Rule 2210(d)(3) in the communication?
- A. No. Rule 2210(d)(3) expressly states that it does not apply to “blind” advertisements used to recruit personnel. Similarly, it would not apply in these recruiting and feedback situations in which using a member name would counteract the purpose of the communication.
- D.4.2. Q. If a firm distributes a communication solely to one or more individuals who are engaged to provide feedback concerning the communication or participate in a usability study concerning the communication (through a focus group or otherwise), and those individuals are informed that the communication is being provided solely for such purpose, would that communication be subject to Rule 2210 and its requirements?
- A. No.
D.5. Use of Hyperlinks in Electronic Communications New
- D.5.1. Q. Does FINRA Rule 2210(d)(1)(A) permit a firm to include in electronic communications hyperlinks to content that provides additional information related to the communication in a fair and balanced manner?
- A: Yes. FINRA Rule 2210(d)(1)(A) requires firm communications, among other things, to be fair, balanced, and not to omit any material fact or qualification if the omission would cause the communication to be misleading. Consistent with these standards, a firm may rely on a hyperlink to provide additional information or explanations so long as the initial electronic communication that includes the link is itself fair and balanced. For example, a non-misleading electronic communication about opportunities in emerging markets could link to an additional explanation about the basis for a claim in the initial post as well as the risks associated with emerging markets investments. However, a firm may not rely on linked explanations or disclosures to correct a communication that is, on its face false, misleading, exaggerated or promissory. 14 To the extent practicable in the given medium, the link itself, or the text within the communication that introduces the link, should state what will be provided through the link.
Historically, FINRA has interpreted the Communications with the Public Rules to permit hyperlinks to explanations and further information in a variety of situations. For example, FINRA Rule 2210 permits firms to use hyperlinks within banner advertisements to generate interest in a topic and provide more information through hyperlinks, 15 and FINRA has interpreted FINRA Rule 2210 to permit firms to link to required information about testimonials.16
This approach is also consistent with the treatment of hyperlinks in the Commission’s recently adopted Investment Adviser Marketing rule under the Investment Advisers Act of 1940. 17 The Marketing Rule Adopting Release notes that the rule’s use of “fair and balanced” is closely aligned with FINRA Rule 2210’s general standards, and that investment advisers may use layered disclosure that employ hyperlinks to meet these requirements. 18
D.6. Internal Rate of Return (IRR) New
- D.6.1. Q. Regulatory Notice 20-21 (FINRA Provides Guidance on Retail Communications Concerning Private Placement Offerings) interprets FINRA Rule 2210 to permit the inclusion of an internal rate of return (IRR) if it is calculated in a manner consistent with the Global Investment Performance Standards (GIPS®) adopted by CFA Institute and includes additional GIPS-required metrics such as paid-in capital, committed capital and distributions paid to investors. What is the distinction between calculating IRR in a “manner consistent with the GIPS standards” and “GIPS compliance”?
- A. The guidance in Regulatory Notice 20-21 that IRR be calculated in a “manner consistent with the Global Investment Performance Standards (GIPS)” refers to using the same primary inputs and calculation methodology articulated in the GIPS standards as well as including prominently in the communication the additional required metrics set forth in the GIPS standards. The primary inputs are external cash flows and the period-end value of the investment or terminal value. With respect to the calculation methodology, since-inception IRR can be calculated using common spreadsheet software and the extended IRR (XIRR) function. 19
Firms that comply with all of the applicable requirements of the GIPS standards on a firm-wide basis may claim compliance with the GIPS standards (i.e., they are “GIPS compliant”). Firms are not required to claim compliance with GIPS or choose to have their firm verified in order to use IRR in private placement communications in a manner that is consistent with the requirements of FINRA Rule 2210.
While the GIPS standards generally prohibit firms from making any statement referring to the calculation methodology as being “in accordance,” “in compliance,” or “consistent” with the GIPS standards, CFA Institute has created a limited exception for firms and their agents in retail communications concerning private placement offerings that are prepared in a manner consistent with FINRA Rule 2210 and the guidance in Regulatory Notice 20-21. 20
It is also important to recognize that the requirement to present IRR calculated in a “manner consistent with the Global Investment Performance Standards (GIPS)” only applies to investment programs with ongoing operations that include a combination of realized and unrealized holdings.
When presented in a fair and balanced manner, realized historical performance for a completed investment program, whether expressed as IRR or any other return metric, will generally be consistent with the content standards in FINRA Rule 2210. In contrast, as stated in Regulatory Notice 20-21, IRR presented for privately placed new investment programs that have no operations or that operate as a blind pool is a projection prohibited by FIRNA Rule 2210(d)(1)(F).
- D.6.2. Q. If an investment program has both realized and unrealized holdings, may a firm show returns for each of the realized holdings without also showing the program’s IRR?
- A. Presenting returns solely for realized holdings in a program with ongoing operations without presenting the fund’s IRR may be consistent with FINRA Rule 2210 provided that the information presented is fair and balanced. If a communication shows returns for any realized holding, then returns for each realized holding must be shown with equal prominence. “Cherry picking” or excluding returns for realized holdings that performed poorly would be misleading and inconsistent with FINRA Rule 2210(d)(1)(B).
In contrast, unrealized holdings have no actual performance experience, and any return metric would require its valuation to be estimated. Such metrics would represent a prohibited projection under FINRA Rule 2210(d)(1)(F).
- D.6.3 Q. May a firm aggregate realized holdings of an investment program together into an “aggregate realized investment” return without showing the total program’s IRR?
- A. As a general matter, it is misleading for a communication to include metrics that combine or average the performance of only the individual realized holdings. Such metrics may mask unequal or poor returns and the results may not be representative of the ultimate performance of the unrealized holdings or the program as a whole. This is the case whether or not the total fund IRR is included.
- D.6.4 Q. A firm wants to prepare a communication for an ongoing program that includes an IRR and the additional metrics required by the GIPS standards in accordance with Regulatory Notice 20-21. Is the firm allowed to also include information beyond what is required by the GIPS standards?
- A. Generally, a firm may include information beyond what is required by the GIPS standards in a communication for an ongoing program. Any information must be presented in a fair and balanced manner, must not be misleading, and otherwise must be consistent with the content standards of FINRA Rule 2210(d).
D.7. Prohibition on Predictions or Projections of Investment Performance New
- D.7.1 Q. May a firm include in a retail private placement communication a “target return” to investors if the communication also includes the assumptions and key risks underlying the return?
- A. FINRA Rule 2210(d)(1)(F) prohibits predictions or projections of performance, the implication that past performance will recur, and any exaggerated or unwarranted claim, opinion or forecast. As discussed in Regulatory Notice 20-21, “retail communications may not project or predict returns to investors such as yields, income, dividends, capital appreciation, percentages or any other future investment performance.” This prohibition extends to retail communications that include target returns to investors. However, Regulatory Notice 20-21 makes clear that Rule 2210(d)(1)(F) does not prohibit reasonable forecasts of issuer operating metrics (e.g., forecasted sales, revenues or customer acquisition numbers) that may convey important information regarding the issuer’s plans and financial position, provided that the retail communication provides a sound basis for evaluating the facts as required by Rule 2210(d)(1)(A). Such reasonable forecasts may take the form of target issuer operating metrics, so long as the retail communication does not provide a target return to investors. The Notice also provided guidance on the types of information that should be included, and the factors firms should consider, when creating, reviewing, approving or using forecasts of issuer operating metrics in retail communications.
E. Limitations on Use of FINRA's Name
(No Q&As currently under this section)
F. Public Appearances
F.1. Supervision Updated
- F.1.1. Q. If a registered representative makes a scripted presentation at a seminar for prospective retail investors, what is the responsibility of the firm with which the representative is associated to supervise the presentation?
- A. A sales script used in a seminar is considered a retail communication under FINRA Rule 2210 (assuming the script is used with more than 25 retail investors within a 30 calendar-day period).
The firm with which the representative is associated is responsible for approving prior to use any retail communication used as part of the seminar presentation. If a retail communication is subject to a filing requirement under FINRA Rule 2210, the firm also must file the communication with FINRA. FINRA Rule 2210(f)(3) requires each firm to establish written procedures that are appropriate to its business, size, structure, and customers to supervise its registered representative's public appearance. These procedures must provide for education and training, documentation of such education and training, and surveillance and follow-up to ensure that representatives implement and adhere to the procedures.
- F.1.2 Q. Our firm’s registered representatives may meet with groups either in person or using online conferencing platforms. How should firms supervise these meetings?
- A. Firms must supervise registered representatives' live meetings with customer groups, whether in person or through an online conferencing platform, in a manner reasonably designed to achieve compliance with applicable securities laws and regulations and FINRA rules, including FINRA Rule 2210(f). This rule provision sets forth supervision and content standards for public appearances such as seminars, forums, media interviews or other public speaking activities that are unscripted and do not constitute retail communications, institutional communications, or correspondence.
- F.1.3 Q. If a registered representative uses visual aids, such as a whiteboard or dynamic charts, or a chat or instant messaging feature during a live, unscripted online conference, how should a firm supervise these aspects of the presentation?
- A. Depending on the nature and number of persons attending the meeting, the use of these visual aids may be correspondence, retail communications or institutional communications, and the firm must supervise them as such. See FINRA Rules 2210(a), 2210(b) and 3110(b)(4). In addition, their content must be consistent with applicable standards, such as those in FINRA Rule 2210(d).
For example, if a representative meets with fewer than 25 retail investors, and uses the chat feature of the online conferencing platform to answer a live question, that chat content meets the definition of correspondence in FINRA Rule 2210(a)(2). The firm must review the chat content in the same manner as required for supervising and reviewing any other correspondence pursuant to FINRA Rule 3110(b) and 3110.06 through .09.
In another example, if during a meeting that includes more than 25 retail investors, a representative uses the chat feature to post an electronic file containing content that promotes a new mutual fund, the content in the file meets the definition of a retail communication in FINRA Rule 2210(a)(5). Because the content in the file promotes a product of the firm, a registered principal must have approved it prior to use as required by FINRA Rule 2210(b)(1)(A). In addition, because the content in the file promotes a specific registered investment company (i.e., the mutual fund), the firm must also submit it to FINRA’s Advertising Regulation Department within 10 business days of first use as required by FINRA Rule 2210(c)(3). In contrast, if during an online meeting that includes more than 25 retail investors, a representative responds to a live audience question by using the platform’s whiteboarding feature to draw a diagram illustrating the differences between a conventional bond and a stock, that content would meet the definition of a retail communication in FINRA Rule 2210(a)(5). However, because the representative created and posted the whiteboarding content during an online interactive electronic forum, the firm would not have to approve such content prior to use (see FINRA Rule 2210(b)(1)(D)(ii)). Instead, the firm may review the whiteboarding content in the same manner as required for supervising and reviewing correspondence pursuant to FINRA Rule 3110(b) and 3110.06 through .09.
As a final example, a representative of an ETF broker-dealer distributor hosts a webinar attended by 100 registered representatives of other broker dealers. During the presentation, the distributor representative conducts an interactive poll about the latest ETF offered by the distributor. Once the poll is complete, the distributor representative posts the results live to all of the attendees. Because the audience is composed solely of registered representatives, the poll and the results would meet the definition of institutional communication in FINRA Rule 2210(a)(3). As such, the distributor would need to review the poll and the results in accordance with the firm’s written supervisory procedures for the supervision of institutional communications adopted in accordance with FINRA Rule 2210(b)(3). While such procedures don’t require review of all institutional communications prior to first use, they must include provisions for the education and training of associated persons as to the firm’s procedures governing institutional communications, documentation of such education and training, and surveillance and follow-up to ensure that firm personnel implement and adhere to such procedures.
- F.1.4 Q. If a third party, such as a fund distributor or program sponsor, presents information or speaks with clients during a presentation, either in person or using an online conferencing platform, during which a representative of a broker-dealer also speaks or presents, what must the representative disclose about that third party?
- A. FINRA Rule 2210(f)(1) provides that, when participating in unscripted public appearances, associated persons of broker-dealers must follow the standards of FINRA Rule 2210(d)(1). Paragraph (d)(1)(A) requires firms’ communications with the public to be fair and balanced, and prohibits the omission of material information that would cause the communication to be misleading. To comply with these obligations, when a registered representative appears at an event along with personnel from a third party, such as a fund distributor or program sponsor, the representative should clearly explain the purpose of the meeting, the identity of the third-party entity, whether the third-party entity paid for or sponsored the meeting, and the relationship between the representative, the broker-dealer, and the third-party entity. 21
- F.1.5 Q. If our registered representatives use communications with the public that direct customers to in-person or online presentations hosted by a third party, what supervision requirements apply?
- A. A firm is responsible under FINRA Rule 2210 for third-party content if the firm has adopted or become entangled with such content. 22
If a firm permits its representatives to direct investors to presentations hosted by a third party that concern securities products or services, FINRA would consider the firm to have adopted that content. Accordingly, the firm would need to ensure compliance with the content and supervision standards addressed above.
In addition, even if a firm or its representatives did not direct customers to attend the third-party hosted presentation, where the firm or representative paid for, arranged for, or was otherwise involved in the presentation, FINRA would consider the firm or representative to be entangled with the presentation. Accordingly, FINRA would treat the presentation as a communication with the public by the firm. 23 Again, under such circumstances, the firm would need to ensure compliance with the content, and supervision standards addressed above.
F2. Firm Name
- F.2.1. Q. Is a registered representative required to disclose the firm's name during a public appearance?
- A. The requirement in FINRA Rule 2210(d)(3) to disclose a firm's name applies to retail communications and correspondence. Accordingly, sales scripts, slide presentations and brochures used in connection with a public appearance must disclose the firm's name. A registered representative is not required to disclose the firm's name as part of non-scripted, extemporaneous remarks during a public appearance.
G. SEC Advertising Rules
G.1. SEC Rule 482
- G.1.1 Q. Does a promotional item, such as a t-shirt, cap or pen, that contains only the name of a mutual fund or fund family, have to include the prospectus offering legend required by SEC Rule 482 under the Securities Act?
- A. No. In FINRA's view, promotional items that only contain the name of a mutual fund or fund family would not be considered an "advertisement" for purposes of Rule 482, and therefore, are not subject to the requirements of that rule, including the requirement to include a prospectus offering legend.
- G.1.2. Q. Is a communication to a customer that lists the customer's securities and other investments held at a firm, or at various broker-dealers, investment advisers and other entities, and the performance of those investments, subject to Rule 482 or Rule 34b-1 under the Investment Company Act of 1940?
- A. No. In FINRA's view, assuming the communication merely informs an existing customer of his or her securities holdings and other investment positions held at the firm or at multiple intermediaries, and the prior performance of those investments, and it does not offer securities of a registered investment company, we believe that the communication would not be considered an advertisement for purposes of Rule 482 and Rule 34b-1. However, if the communication explicitly or implicitly induces the purchase of shares of a registered investment company, we believe that the communication could be subject to the requirements of Rule 482 and Rule 34b-1.
1. See FINRA Rule 2241(a)(3), (a)(14), (h)(1), (h)(3), and (h)(5).
2. Unless FINRA specifically directs a firm to file its institutional communications pursuant to FINRA Rule 2210(c)(1)(B), a firm is not required to file its institutional communications with the Advertising Regulation Department. If a firm chooses voluntarily to file a third-party research report that qualifies as an institutional communication, however, an appropriately qualified principal must approve the report prior to filing. See FINRA Rule 2210(b)(1)(F).
3. See also letter from Afshin Atabaki, FINRA, to Wallace W. Kunzman, Jr. (December 1, 2014).
4. See FINRA Rule 2210(c)(7)(F).
5. "Responsive web design" refers to technology that changes the display of a web page in response to the needs of users and the devices they're using. The layout may change based on the size and capabilities of the device. For example, on a phone, users would see content shown in a single column view; a tablet might show the same content in two columns. See "Responsive Web Design Basics."
6. Pursuant to FINRA Rule 2210(c)(7)(B), the firm also would not be required to file future versions of the fund fact sheets (such as fact sheets issued after the end of the next calendar quarter) where the changes are limited to updates of more recent statistical or other non-narrative information and non-predictive narrative information that describes market events during the period covered by the communication or factual changes in portfolio composition or is sourced from a registered investment company’s regulatory documents filed with the SEC.
7. For example, FINRA has stated that firms are not required to file information, including performance information, provided to participant-directed individual account plan participants pursuant to DOL Rule 404a-5 under ERISA. See Regulatory Notice 12-02 (January 2012).
8. See Regulatory Notices 07-59 (FINRA Guidance Regarding Review and Supervision of Electronic Communications) and 10-06 (Guidance on Blogs and Social Networking Web Sites) for additional guidance on supervision of digital correspondence.
9. FINRA Rule 2210(c)(7)(I) excludes from the filing requirements any reprint or excerpt of any article or report issued by a publisher, provided that (i) the publisher is not an affiliate of the member using the reprint or any underwriter or issuer of a security mentioned in the reprint that the member is promoting; (ii) neither the member using the reprint nor any underwriter or issuer of a security mentioned in the reprint has commissioned the reprinted article or report; and (iii) the member using the reprint has not materially altered its contents except as necessary to make the reprint consistent with applicable regulatory standards or to correct factual errors.
10. The SEC staff has taken the position, however, that certain interactive content posted on a real-time electronic forum (i.e., chat rooms or other social media) should be filed under the filing requirements of Section 24(b) of the Investment Company Act of 1940 or Rule 497 under the Securities Act of 1933 (Securities Act), even if it is not required to be filed with FINRA under FINRA Rule 2210. See U.S. Securities and Exchange Commission, Division of Investment Management, IM Guidance Update No. 2013-01 (March 2013).
11. See Notice to Members 06-48 (September 2006).
12. The Hartford Letter defined “Related Performance Information” as “actual performance of all separate or private accounts or funds that have (i) substantially similar investment policies, objectives, and strategies, and (ii) are currently managed or were previously managed by the same adviser or sub-adviser that manages the registered mutual fund that is the subject of an institutional communication.”
13. The Hartford Letter defined “Related Accounts” as all separate or private accounts or funds that fall within the definition of “Related Performance Information.”
14. FINRA Rule 2210(d)(1)(B) states, “No member may make any false, exaggerated, unwarranted, promissory or misleading statement or claim in any communication. No member may publish, circulate or distribute any communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading.”
15. The June 1997 Issue of NASD’s Regulatory and Compliance Alert included an “Ask the Analyst” question and answer regarding banner advertisements. The answer indicated that a banner advertisement that contained a truthful claim regarding mutual funds (and that did not contain promissory language or graphics) could comply with the Rules by hyperlinking to a webpage containing the information necessary to provide a sound basis to evaluate the facts regarding the mutual funds. FINRA has extended this approach to other electronic communications such as interactive social media posts.
16. See Regulatory Notice 17-18 (Guidance on Social Networking Websites and Business Communications).
17. See Investment Advisers Act Rule 206(4)-1(a)(4); see also Investment Advisers Act Release No. 5653 (December 22, 2020), 86 FR 13024 (March 5, 2021) (“Marketing Rule Adopting Release”), codified at 17 CFR 275.206(4)-1.
18. In particular, the Marketing Rule Adopting Release states that, “[s]o long as each layer of a layered advertisement complies with the requirement to provide benefits and risks in a fair and balanced manner, providing hyperlinks to additional content would meet the requirement of [the Rule].” See Marketing Rule Adopting Release, 86 FR at 13044 and note 239.
19. For details, see Global Investment Performance Standards (GIPS) For Firms (2020), GIPS Standards Handbook for Firms (2020) and FINRA Regulatory Notice 20-21 and the GIPS Standards (video).
20. For specific details on the requirements of this limited exception, see Memorandum RE: FINRA’s Regulatory Notice 20-21 and References to the GIPS Standards.
21. See Regulatory Notice 07-43 (Senior Investors) and Protecting Senior Investors: Report of Examinations of Securities Firms Providing “Free Lunch” Sales Seminars for a discussion of effective practices regarding sales seminars.
22. See, e.g., Regulatory Notice 17-18 (Guidance on Social Networking Websites and Business Communications).
23. See Regulatory Notice 10-06 (Guidance on Blogs and Social Networking Web Sites) for a discussion of the “adoption” and “entanglement” theories as they apply to third-party content.
What and When to File
- 1. What are the categories that make up communications with the public?
- FINRA Rule 2210 defines three categories of communications:
- Retail communication consists of any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period. A retail investor is any person other than an institutional investor, regardless of whether the person has an account with the firm.
- Correspondence consists of any written (including electronic) communication distributed or made available to 25 or fewer retail investors within any 30 calendar-day period.
- Institutional communication means any written (including electronic) communication that is distributed or made available only to institutional investors as defined but does not include a firm's internal communications. Institutional investors include banks, savings and loan associations, insurance companies, registered investment companies, registered investment advisors, a person or entity with assets of at least $50 million, government entities, employee benefit plans and qualified plans with at least 100 participants, FINRA member firms and registered persons, and a person acting solely on behalf of an institutional investor.
If a firm has reason to believe that a communication intended for institutional investors will be forwarded to or made available to a person that is not an institutional investor, the communication must not be treated as an institutional communication. Note that individual participants of employee benefit plans and qualified plans are not considered institutional investors.
- 1. What are the approval requirements for retail communications?
- FINRA Rule 2210(b) requires that all retail communications must be approved by an appropriately qualified registered principal before the earlier of its use or filing with FINRA's Advertising Regulation Department.
- 2. Are there any exceptions to the principal approval requirement for retail communications?
- A registered principal does not need to approve any retail communication that has already been filed with FINRA and that FINRA has deemed consistent with applicable standards, provided the communication has not been materially altered.
In addition, prior to use, approval is not required if a firm supervises and reviews the following types of retail communications in the same manner as correspondence pursuant to FINRA Rule 3110(b) and 3110 Supplementary Material .06 through .09:
- any retail communication that does not make any financial or investment recommendation or otherwise promote a product or service of the member.
- any retail communication that is posted on an online interactive electronic forum.
- Any retail communication that is excepted from the definition of “research report” pursuant to FINRA Rule 2241(a)(11(A) and 2242(a)(3)(A).
- 1. What communications must be filed with FINRA prior to use?
- The following retail communications must be filed at least 10 business days prior to first use or publication:
- retail communications of new member firms used in any electronic or public media for one year beginning on the date the firm's FINRA membership becomes effective, as reflected in the CRD system. For example, this requirement applies to any generally accessible website; newspaper, magazine, telephone directory or other advertisements; television or radio commercials; telephone or audio recordings; video displays, signs or billboards; and motion pictures;
- retail communications that include rankings or performance comparison information that is not generally published or that is created by the investment company;
- security futures retail communications; and
- retail communications concerning options used prior to delivery of the options disclosure document must be filed 10 calendar days prior to use.
- 2. What communications must be filed with FINRA within 10 business days?
- The following retail communications must be filed within 10 business days of use:
- registered investment company retail communications that promote or recommend a specific registered investment company or family of registered investment companies;
- retail communications concerning any structured or derivative product registered under the Securities Act;
- retail communications concerning public direct participation programs;
- retail communications concerning collateralized mortgage obligations registered under the Securities Act;
- final filmed versions of television and video communications previously filed in draft form.
- 3. What communications do not need to be filed with FINRA?
- The filing requirements do not apply to institutional communications and correspondence.
- 4. Must all retail communications be filed with FINRA?
- No, some retail communications are excluded from the filing requirements. However, it is important to note that whether a communication is subject to filing or not, firms must ensure that all their communications regarding financial products and services comply with applicable FINRA, SEC, MSRB and SIPC rules.
The following retail communications are excluded from the filing requirements:
- communications that refer to types of investments solely as a listing of the products or services offered by the firm;
- retail communications that do not make any financial or investment recommendation or promote a product or service of the firm;
- prospectuses, preliminary prospectuses, fund profiles, offering circulars, annual and semi-annual reports and similar documents filed with the SEC or any state in compliance with applicable requirements as well as offering documents concerning securities exempt from such filing or registration including free writing prospectuses exempt from filing with the SEC. Note: When reviewing a filed communication, FINRA staff may request, or members may provide the relevant product prospectus;
- previously-filed retail communications that are used without material change;
- retail communications based on previously filed templates, with changes limited to updates of more recent statistical or other non-narrative information and non-predictive narrative information that describes market events during the periods covered by the communication or sourced from the investment company’s regulatory documents filed with the SEC;
- retail communications posted on an online interactive electronic forum;
- press releases issued by NYSE-listed, closed-end investment companies as required by section 202.06 of the NYSE Listed Company Manual;
- retail communications subject to SEC Rule 134 and matter of record announcements regarding participation in a private placement (except for those related to public DPPs or registered investment company securities);
- press releases made available only to the members of the media;
- any reprint or excerpt of an article issued by a publisher that has not been materially altered in content except to comply with regulatory standards or correct errors and when the member has not commissioned the reprint and is not affiliated with the publisher; and
- retail communications that do no more than identify the member or offer a specific security at a stated price.
- 5. Can communications be filed voluntarily?
- Yes, firms may voluntarily file communications for review by FINRA. Some reasons for filing voluntarily include:
- new product launch;
- use of a new format or medium, such as the firm's first television commercial or the firm's first mobile application;
- address compliance questions; and
- rule changes.
- 6. What information should accompany filings of ghostwritten communications on behalf of third party vendors?
- FINRA understands that some firms file ghostwritten communications on behalf of third party vendors for review. In order to facilitate these reviews, firms should disclose to FINRA that the communications were created by a third party vendor which may market them to other firms. Firms are reminded that Regulatory Notice 08-27 provides guidance about the use of ghostwritten communications.
How to File
- 1. How do I file communications for review by FINRA?
- Firms file most communications for review using the Advertising Regulation Electronic Files (AREF) system. You may also call the Advertising Regulation Department at (240) 386-4500 to learn more about how to file using AREF.
- 2. How will FINRA respond to communications that firms submit for review?
- FINRA provides a written "Review Letter" electronically via the AREF system. The Review Letter provides necessary comments as to the compliance of the submission. In addition, the review letter documents the cost of the review.
Our expedited review service provides for a response within three business days (or other negotiated time period) after the day FINRA receives the material. FINRA will send expedited responses no later than close of business on the third review day. However, response time for regular submissions may vary depending on the volume of filings FINRA receives.
- 3. What are the filing fees for the submission of communications to FINRA?
- As set forth in Section 13, Schedule A of the FINRA By-laws, the following fees apply to each communication submitted:
- $ 125.00 for the first ten pages of material
- $ 10.00 for each additional page
- $ 125.00 for the first ten minutes of each video and audio item
- $ 10.00 for each additional minute of each video and audio item
- $600.00 for all requests for expedited review for the first ten pages/minutes
- $ 50.00 per page/minute in excess of the first ten pages/minutes
- 4. How are filing fees paid?
- Each month, your firm's Super Account Administrator will receive an email notification that an Advertising Regulation invoice is available in E-Bill via FINRA Gateway. The Advertising Regulation Invoice will provide detailed transaction charges incurred during the billing period along with the total amount due. You may pay your Advertising Regulation fling fees online using E-Bill:
- Firm Bank Account (ACH payment)
- Credit Card Payment (Visa, MasterCard or American Express)
- FINRA Flex-Funding Account
The FINRA Flex-Funding Account, formerly known as the CRD/IARD Daily Account, allows firms to view invoices and pay fees formerly paid through the Web CRD system.
- Wire Payments
Funds may be wired for payment of filing fees. To pay Advertising invoices by wire transfers, provide your bank with the following information:
Bank Name: Bank of America
Transfer funds to: FINRA
Wire ABA Number: 026009593
ACH ABA Number: 054001204
- Check Payment
Checks can be sent by regular mail or by courier/overnight delivery. Checks sent by regular mail must be sent to the P.O. Box address provided below. All checks sent by courier or overnight delivery must be sent to the alternative address provided below, as the P.O. Box address will not accept courier or overnight deliveries. We encourage the use of the P.O. Box address as it facilitates more timely automated processing of your remittance.
Include the invoice number on the check and send the payment to:
P.O. Box 418911
Boston, MA 02241-8911
(Note: P.O. Box does not accept overnight/courier deliveries)
For courier/overnight CHECKS only:
Bank of America Lockbox Services
2 Morrissey Blvd.
Dorchester, MA 02125
- 5. How do I access additional information about my Advertising Regulation fee transactions?
- Firms may view online in AREF a real time listing of current and past transactions. If your firm incurred filing fees prior to December 2012, you may also view historical Advertising Regulation Fee Account statements.
- 6. How do I contact the Department?
- Our contact information is:
Advertising Regulation Department
9509 Key West Avenue
Rockville, MD 20850-3389
Telephone: (240) 386-4500
Fax: (240) 386-4568