Required Disclosures

The whole unit on one sheet: what must be disclosed, what must never be said, and the limits on the Administrator's reach.

The One-Liners That Win Points

• Selling securities at a financial institution (bank, credit union, savings association) triggers four disclosures: NOT insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), NOT deposits or obligations of the institution, NOT guaranteed by it, and subject to investment risk including possible loss of principal.
• That disclosure must be BOTH oral AND written; one alone is not enough. Oral comes before or at the transaction; written on or before completion.
• A registration becomes "effective," never "approved." The Administrator does not pass on merits, recommend, or endorse any person, security, or transaction.
• Exempt status is not a seal of approval either. Calling a Treasury bond "safe because the state exempts it" is an unlawful representation.
• Never guarantee a customer against loss in any account or transaction, and never promise a specific return; this is a dishonest and unethical practice.
• A bond's stated coupon ("this bond pays 5% per year") is a factual statement about the issuer's contractual obligation, NOT a performance guarantee.
• The Administrator may require filing of prospectuses, advertisements, and other sales literature, using pre-use, concurrent, or post-use timing.
• Filing authority does NOT reach exempt securities, exempt transactions, or federal covered securities.

Numbers to Lock In

• The recordkeeping angle carries no state retention schedule to memorize. A state may require records only if consistent with the federal recordkeeping standards, and it cannot exceed them. NASAA has issued no model rule on broker-dealer books and records.
• The Administrator may examine a broker-dealer's records but cannot write its own rules on which records must be kept; that authority belongs to the federal regulators.

The Sharing Exception

• An agent may share in a customer account's profits or losses only with written authorization from the customer, written authorization from the employing broker-dealer, AND sharing only in proportion to the agent's own financial contribution.
• Miss any one of those and it is a prohibited practice.

Top Gotchas

• The word "approved" is the red flag. Even a properly registered security is "registered" or "effective," never "state-approved."
• Nothing the Administrator does is approval: not registering a person, not registering a security, and not reviewing filed advertising. If a question asks whether review equals endorsement, the answer is always no.
• No guarantee against loss, ever ("I'll make up any losses" is an implicit guarantee and still prohibited).
• Distinguish the issuer's contractual coupon (a fact) from the agent guaranteeing a return (prohibited).
• Filing advertising with the Administrator does NOT make it approved content.

One-Breath Recap

Communication is the heaviest section on the exam, and this unit is its disclosure core. At a bank, give the four "not insured, not a deposit, not guaranteed, may lose value" disclosures both orally and in writing. Registration and exemption are never approval, endorsement, or recommendation, so a properly registered security is "effective," never "state-approved." Never guarantee a customer against loss or promise a specific return, though quoting a bond's coupon is a permitted fact. The Administrator may require pre-use, concurrent, or post-use filing of advertising but reaches neither exempt nor federal covered securities, and a state may demand records consistent with the federal standards but never beyond them.

Need more than the recap? This is a condensed summary. If it is not enough, read the full Required Disclosures unit for the complete lesson.