Content Standards and Prohibitions

Now that you can classify a communication, the next question is: what can (and cannot) the content say? FINRA Rule 2210 imposes baseline standards that apply to all communications, plus extra disclosures for retail communications. These standards apply regardless of whether the piece is a retail communication, correspondence, or institutional communication.

What content standards apply to all broker-dealer communications under Rule 2210?

Every broker-dealer communication must:

• Be based on principles of fair dealing and good faith
• Be fair and balanced and provide a sound basis for evaluating the facts
• Clearly identify the member firm by name
• NOT omit any material fact or qualification if the omission would make the communication misleading
• NOT contain any false, exaggerated, unwarranted, promissory, or misleading statements or claims
• NOT predict or project performance or imply past performance will recur (with narrow exceptions, such as Rule 482 standardized performance)
• NOT make any exaggerated or unwarranted claim, opinion, or forecast

What additional disclosures do retail communications require?

Retail communications must go further. In addition to the general standards above, they must:

• Reflect any material limitation or qualification on the claims being made
• Clearly distinguish hypothetical or back-tested performance from actual performance
• For testimonials, disclose whether the endorser was paid, whether the endorser is a customer, and any material conflicts

Exam Tip: Gotchas

A retail communication that shows hypothetical or back-tested returns must clearly label them as such. Presenting modeled returns alongside actual returns without a clear distinction is a Rule 2210 violation.

What tax language is prohibited in broker-dealer communications?

The exam repeatedly tests the tax-treatment language a rep may use. The two key distinctions:

• Tax-free: Interest or earnings are never taxed (e.g., qualified municipal bond interest at the federal level). Use only when the product is genuinely tax-free.
• Tax-deferred: Taxes are delayed until withdrawal, not eliminated (e.g., variable annuity earnings, traditional IRA earnings). Use when taxes are merely postponed.

Requirements:

• Cannot call a product "tax-free" if it is only tax-deferred
• Must identify federal vs state tax treatment (e.g., municipal bond interest is federally tax-exempt but may be state-taxable for out-of-state investors)

Exam Tip: Gotchas

Tax-deferred is NOT tax-free. A variable annuity communication that describes the product as "tax-free" violates FINRA Rules 2210 and 2211, plus the antifraud provisions of Securities Act Section 12. A Series 6 rep who signs off on "tax-free" language for a variable annuity is creating civil liability for the firm.

What content is prohibited in broker-dealer communications?

A quick checklist of prohibited content in any broker-dealer communication:

• Exaggerated claims about performance, management skill, or product features
• Unwarranted forecasts of future returns
• Promissory language ("guaranteed to beat the market")
• Past performance guarantees that imply future results will be the same
• Misleading comparisons to indexes or other investment vehicles without context
• Equal-prominence failures (e.g., boldfacing benefits but burying risks in footnotes)

Exam Tip: Gotchas

Municipal bond interest is federally tax-exempt, but it may be state-taxable when the investor is out-of-state. A communication that says "tax-free" without calling out the state-tax exposure can mislead out-of-state investors.