Content Standards

The content standards are the substance layer of communications regulation. Classification tells the firm how to handle a piece of content; the content standards tell the firm what the content can say. A piece that clears classification and approval but fails the content test still violates the communications framework.

The General Standards

The general communications standard requires every communication, regardless of category, to satisfy four general standards:

• Principles of fair dealing and good faith: communications cannot mislead, deceive, or take advantage of investor naïveté
• Fair and balanced: any presentation of benefits must be balanced with a discussion of risks; any selective performance comparison must include the appropriate counterpoint
• Sound basis for evaluation: enough information must be provided that the recipient can evaluate the facts about the security, industry, or service
• Nature of the audience: details and explanations appropriate for an institutional audience may not be suitable for retail; the firm must consider who is reading

In addition, the standards explicitly prohibit:

• False, exaggerated, unwarranted, promissory, or misleading statements or claims
• Omission of material facts or qualifications, if the omission would render the communication misleading
• Implications that the firm's services are guaranteed, certain, or superior to others without a factual basis

Think of it this way: The general standards are a balanced-presentation rule. Anything you say about an investment must be paired with the relevant context that a reasonable investor would need to evaluate the claim.

Exam Tip: Gotchas

• An audience-appropriate communication for institutional investors may be misleading for retail. A complex CMO tranche structure described in shorthand to institutional traders may be a content violation if forwarded to retail clients without expanded explanation. The standard scales to the audience.
• Omission can be a content violation as fully as misstatement. A communication that touts five-year returns but omits the loss in year three can be misleading by omission. The exam tests this as: "Is the content false?" The answer can be no, the content is true, but it is still a violation because of what is missing.

Performance Projections and Forecasts

The performance-projection prohibition heavily restricts predictions, projections, and forecasts of investment results:

• No predicting or projecting performance in a manner that implies past performance will recur or in a manner that is exaggerated or unwarranted
• No implication of certainty about returns, market direction, or product outcomes
• Limited exception for investment-analysis-tool outputs (covered separately)
• Limited exception for target return ranges under specified conditions: based on stated criteria and assumptions, sound basis, fair-and-balanced disclosure, and prominent risk disclosures

Hypothetical and back-tested performance is similarly restricted: any back-test must include proper context, the methodology, the assumptions, and prominent disclaimers.

Exam Tip: Gotchas

• A communication that says "expected return of 8%" without source, methodology, or risk disclosure is a performance-projection violation. Even target return ranges are permitted only under strict conditions: based on criteria and assumptions, sound basis, fair-and-balanced disclosure, and prominent risk disclosures.
• Investment-analysis-tool output is the major safe harbor for projections. A qualifying tool can produce probability-of-outcome simulations, but the communication framing the tool must include the required disclosures (criteria and methodology, results may vary, no certainty implication, prominent disclaimer).

Testimonials

Communications containing testimonials about a member or its services must prominently disclose:

• Whether the testimonial reflects a typical experience of clients (and if not, that fact)
• That past performance is no guarantee of future results (for any testimonial concerning investment performance)
• Compensation paid to the testimonial provider, if more than nominal

A related testimonial-advertising framework applies to SEC-registered investment advisers under the Investment Advisers Act of 1940. For broker-dealers, the FINRA content standards control.

Exam Tip: Gotchas

• A testimonial requires three disclosures: typicality, past-performance disclaimer, and compensation if more than nominal. The exam will hand you a fact pattern with two of the three and ask whether the testimonial is compliant. It is not; all three are required.
• A "nominal" payment threshold has no bright-line dollar amount. Industry practice treats anything above the cost of a minor token (a meal, a small gift) as more than nominal. A $500 payment is clearly compensation requiring disclosure.

Comparisons With Other Firms or Products

Comparisons of the firm's services with those of other entities are permitted only if material differences are disclosed. A side-by-side fee table that omits the comparator's superior service offering, or that omits the firm's higher minimum, can be misleading by omission.

The same standard applies to comparisons of:

• Investment products (one fund versus another)
• Performance histories
• Service models (full-service versus discount, advisory versus brokerage)

Exam Tip: Gotchas

• A fair comparison must disclose material differences, not only the differences that favor the firm. A communication that says "Our fees are 0.5% lower than Competitor X" without disclosing that Competitor X provides three additional services is a material-omission violation.

Hyperlinks and Adopted Content

A firm is responsible for the content of a hyperlink in its communication if the firm has adopted or become entangled with the linked content. The adoption-and-entanglement test asks:

• Did the firm endorse, approve, or vouch for the linked content?
• Did the firm prepare or contribute to the linked content (entanglement)?
• Did the firm link to it as if the content reflects the firm's view?

Pure factual references (a link to the SEC's website for a public filing, a link to a prospectus on the issuer's site) generally do not implicate adoption. A link to a third-party blog post that touts the firm's services, presented as if endorsed, is adopted content.

Exam Tip: Gotchas

• The firm becomes responsible for linked content under adoption or entanglement, not by mere existence of the link. A footnote citation to an SEC filing is not adopted; an "as featured in" link to a flattering article is.
• Adoption attaches to the firm's communication standards, not just the linker's intent. Once content is adopted, the linked material must satisfy the FINRA content standards as if the firm had written it.

Public Appearances

The communications content standards extend to statements made by an associated person in a public appearance (interview, seminar, webinar, conference). The same fair, balanced, not-misleading standard applies, plus two additional requirements when a registered representative recommends a security in a public appearance:

• A reasonable basis for the recommendation
• Disclosure of the firm's and representative's interest in the recommended security (ownership, market making, investment banking relationship)

A representative who recommends XYZ stock at a public seminar must disclose that the firm makes a market in XYZ, owns a position, or has an investment banking engagement with the issuer. Failure to disclose violates the content standards independent of any approval or filing rule.

Think of it this way: Public-appearance content is governed by the same content standards as written content, but the approval and filing rules drop out. The substantive truth-and-disclosure rules stay.

Exam Tip: Gotchas

• Public-appearance recommendations require reasonable basis plus interest disclosure. A representative who praises XYZ stock at a free seminar without disclosing that the firm owns 5% of the float violates the content standards, regardless of whether the seminar was a public appearance (no pre-approval) or a webinar (potentially a retail communication if recorded and distributed).