Quick Answer
Every broker-dealer communication, in any category, must be fair and balanced and free of misleading claims. Approval and filing requirements then diverge by category: retail communications need principal pre-approval and sometimes a FINRA filing; institutional communications and correspondence need written review procedures instead.
The content standards are the same for every category. What changes is who signs off before the communication goes out and whether FINRA sees it.
What Content Standards Apply to Every Communication?
Regardless of category, 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
- Not omit any material fact or qualification if the omission would make the communication misleading
- Contain no false, exaggerated, unwarranted, promissory, or misleading statements or claims
- Not predict or project performance or imply that past performance will recur
- Not make any exaggerated or unwarranted claim, opinion, or forecast
These standards apply to retail communications, institutional communications, correspondence, and public appearances alike.
Exam Tip: Gotchas
- Content standards apply to ALL communication types, including public appearances. The exam may present a scenario where a rep makes unbalanced claims during a speech and ask whether any rule was violated (yes, the communications-with-the-public content standards apply).
The overarching principle is fair and balanced. If a communication highlights potential gains, it must also discuss risks.
A back-test's simulated gains are not returns that investors actually earned. Describing them as "actual investor returns" makes a false performance claim, even in an institutional communication. Written review procedures do not excuse misleading content.
A past-performance warning does not cure a prediction that past results will recur. Remove the prediction itself.
Mutual fund advertising also has separate performance-presentation requirements: for a non-money-market fund with at least 10 years of history, a 20-year return cannot replace the required standardized 1-, 5-, and 10-year returns.
An additional historical measure must reflect all elements of return, accompany the standardized returns, appear no more prominently than them, and identify its period and ending date. See Investment Company and Variable Contract Disclosures for those requirements.
A firm may not address a customer's mail in care of someone else unless the customer gave written instructions to do so within the past 12 months, or the firm also sends a duplicate copy to another address the customer designated in writing.
How Do Approval and Filing Requirements Differ by Category?
This is where the categories diverge. The exam frequently tests these distinctions:
| Communication Type | Principal Pre-Approval | FINRA Filing | Supervision Requirement |
|---|---|---|---|
| Retail communication | Required before the earlier of use or filing | Certain categories must be filed, including standardized-options pieces used before the Options Disclosure Document is delivered | Principal must approve before use |
| Institutional communication | Not required before use | Not required | Firm must establish written review procedures |
| Correspondence | Not required before use | Not required | Firm must have supervisory procedures to review |
| Public appearance | Not required | Not required | Firm must establish written supervisory procedures |
Exam Tip: Gotchas
- Institutional communications do NOT require principal pre-approval, but the firm MUST have written review procedures. The exam tests whether you know the difference between "pre-approval required" (retail only) and "review procedures required" (institutional).
If a firm's institutional review procedures do not require every institutional communication to be reviewed before its first use, the firm must instead provide:
- Education and training for the associated persons who prepare or distribute institutional communications
- Documentation of that training
- Surveillance and follow-up to monitor compliance after the fact
Three categories of retail communication escape the standard pre-approval requirement:
- An unaltered retail communication that another member already filed and received a FINRA consistency letter for may be used without separate principal pre-approval
- A retail communication posted on an online interactive electronic forum (such as a chat room) may be supervised like correspondence instead. This exception does not depend on the content: the post may recommend a security
- A retail communication that makes no financial or investment recommendation and does not promote a product or service of the firm may also be supervised like correspondence
The forum exception and the no-recommendation exception are separate:
- A forum post that recommends a stock still qualifies for the forum exception.
- A no-recommendation piece qualifies even when it is not posted on a forum.
- A communication excepted from pre-approval is still a retail communication. The firm must supervise and review it in the same manner as correspondence.
- A retail communication posted on an interactive electronic forum is also excluded from FINRA filing.
Exam Tip: Gotchas
- An exception from pre-approval does not change the category. A prepared written post in a chat room that more than 25 retail investors can read is a retail communication, even though it needs no pre-use principal approval.
- A forum post that recommends a security still gets the forum exception. Do not apply the no-recommendation test to it.
When Must Retail Communications Be Filed With FINRA?
What Applies to New Members?
- Must file retail communications with FINRA's Advertising Regulation Department at least 10 business days before first use
- This is a pre-use filing requirement: the communication cannot be used before the 10th business day after filing
- Exception: a free writing prospectus already filed with the SEC may instead be filed within 10 business days after first use, like an established member's post-use filing
What Requires Filing Before Use, Regardless of Membership Status?
Two categories must be filed at least 10 business days before use, and cannot be circulated until any required changes are made:
- Security-futures retail communications
- Unusual investment-company rankings or comparisons
What Applies to Established Members?
- Certain retail communications must be filed within 10 business days of first use (post-use filing)
- Four categories require this filing:
- A communication that promotes or recommends a specific registered investment company or fund family (mutual funds, ETFs, variable insurance products, closed-end funds, and unit investment trusts all count)
- A communication concerning a public direct-participation program
- A communication concerning a registered collateralized mortgage obligation (CMO)
- A communication concerning a registered security derived from a single security, basket, index, commodity, debt issuance, or foreign currency, when none of the first three categories applies
| Member Status | Filing Timing | When Material Can Be Used |
|---|---|---|
| New member (first year) | At least 10 business days before first use | From the 10th business day after filing |
| Established member | Within 10 business days after first use | Immediately after principal approval |
Exam Tip: Gotchas
- New FINRA members must file BEFORE use (10 business days in advance). Established members file the four listed categories AFTER use (within 10 business days). The exam frequently tests this timing distinction.
- A ranking is not a post-use category. An unusual investment-company ranking or comparison (one whose category is not generally published, or was created by the fund, its underwriter or an affiliate) is filed BEFORE use by any member, established or new.
What Records Must Firms Keep?
Members must maintain records of all retail and institutional communications, including:
- A copy of the communication and the dates of first and last use
- The name of the approving principal and the date of approval
- If a communication was not approved by a principal before first use, the name of the person who prepared or distributed it
- The source of any statistical table, chart, graph, or other illustration used
- For a retail communication filed with FINRA instead of principal-approved, the filing member's name and a copy of FINRA's review letter
- For a communication with a performance ranking or comparison of a registered investment company, a copy of the ranking or performance material used
This requirement comes from broker-dealer recordkeeping rules and applies regardless of whether a FINRA filing is required. Keep these records for at least three years, the first two years in an easily accessible place.
Exam Tip: Gotchas
- Recordkeeping applies to both retail AND institutional communications, not just those filed with FINRA. Even if a communication does not require FINRA filing, the firm must still maintain records of it.
What Should You Check on Exam Day?
- Apply the same fair-and-balanced content standards even to public appearances.
- Distinguish "pre-approval required" (retail only) from "review procedures required" (institutional, correspondence, public appearances).
- Check whether the filer is a new member (files before use) or an established member (files after use), and whether an unusual fund ranking forces pre-use filing.
- Confirm the category actually requires post-use FINRA filing (a specific fund or fund family, a direct-participation program, a CMO, or a derivative security not already covered) before applying the 10-day deadline.
- Remember recordkeeping applies to retail and institutional communications alike, filed or not, and covers more than just the approving principal's name and the dates of use.