Investment Analysis Tools (FINRA Rule 2214)
In most contexts, broker-dealers (BDs) cannot show customers hypothetical investment results. FINRA Rule 2214 creates a narrow exception: interactive investment analysis tools that produce simulations and statistical analyses.
What You'll Learn
- What qualifies as an investment analysis tool under FINRA Rule 2214
- Required disclosures and the mandatory hypothetical disclaimer
- The interactive requirement and what formats do not qualify
What Is an Investment Analysis Tool?
- An investment analysis tool is an interactive technological tool that produces simulations and statistical analyses presenting the likelihood of various investment outcomes
- Rule 2214 permits the use of projections within these tools, subject to specific conditions
- Many firms use Monte Carlo simulations to model potential outcomes across thousands of scenarios
Exam Tip: Gotchas
- Rule 2214 is an exception, not the rule. Broker-dealers are generally prohibited from showing hypothetical projections. This rule only permits them through interactive tools, not through any other format.
Required Disclosures
The tool, any written report it generates, or a related retail communication must include the following disclosures:
- Describe the criteria and methodology used, including the tool's limitations and key assumptions
- Explain that results may vary with each use and over time
- If applicable, describe the universe of investments considered and how the tool selects securities
- Disclose if the tool favors certain securities and explain the reason
- State that other investments not considered may have similar or superior characteristics
The Required Hypothetical Disclaimer
The tool must display a specific prescribed disclosure:
"IMPORTANT: The projections or other information generated by [name of tool] regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results."
- This disclosure must be clear and prominent
- It must be in written (which may be electronic) narrative form
Exam Tip: Gotchas
- The disclaimer must use specific language. Look for the phrases "hypothetical in nature" and "not guarantees of future results." If the disclaimer omits these, it does not satisfy Rule 2214.
- Disclosures must be in written narrative form. A chart or graphic alone is not enough; the disclosure must be in written sentences (electronic counts).
The Interactive Requirement
The interactive requirement is the strictest part of Rule 2214:
- The tool must be used on a one-on-one interactive basis by the retail customer, either independently or with the member's assistance
- The tool must provide individualized results to each user based on the user's specific inputs
- The customer must be able to input their own data and see results tailored to their situation
Think of it this way: The customer must be in the driver's seat. They enter their own age, savings, and goals, and the tool runs projections based on those specific inputs. If the customer cannot change the inputs, it is not interactive under Rule 2214.
What Does NOT Qualify
| Format | Qualifies Under Rule 2214? | Why |
|---|---|---|
| Interactive online tool where customer enters data and sees projections | Yes | One-on-one, interactive, individualized |
| Representative walks customer through the tool together | Yes | Customer participates interactively |
| Pre-made brochure showing hypothetical returns | No | Static, not interactive, not individualized |
| Marketing presentation with projected returns for all audiences | No | Not one-on-one, not personalized |
| Email attachment with model portfolio projections | No | Not interactive |
Exam Tip: Gotchas
- Static materials never qualify under Rule 2214. A pre-made brochure, a marketing presentation, or an email attachment showing hypothetical returns is NOT permitted, even if it includes a disclaimer. The projections must come from an interactive tool the customer uses.
- One-size-fits-all projections are not permitted. The tool must produce individualized results based on each customer's inputs. A generic projection shown to all audiences fails the interactive requirement.