Communications with the Public

Everything a broker-dealer says to the public (advertisements, emails, social media posts, research reports, even seminar presentations) is regulated by FINRA. FINRA categorizes all firm communications and sets standards for content and approval.

The Three Categories

FINRA divides all firm communications into three categories based on the audience and number of recipients:

Exam Tip: Gotchas

• The magic number is 25. More than 25 retail investors = retail communication (highest scrutiny, requires principal pre-approval). At or below 25 = correspondence (firm-level supervision). The threshold is measured within a 30-calendar-day period.
• The 30-day window is cumulative: sending the same email to 13 retail investors on Day 1 and 13 more on Day 15 means you have reached 26. That is a retail communication, not correspondence.

Content Standards

Social media approval exception: A static public profile promoting the firm's services requires pre-use principal approval. A post on an online interactive forum can qualify for an exception from that approval requirement. The firm must still supervise the interactive communication, preserve business records, and apply the content standards below. Being visible to the public determines the audience category; it does not eliminate this exception.

All communications, regardless of category, must meet these standards:

• Must be fair and balanced; cannot be misleading
• Must present risks alongside potential benefits (no cherry-picking the upside)
• Cannot predict or project performance or imply that past performance will recur, with narrow exceptions: a hypothetical illustration of a mathematical principle, an investment-analysis tool report, and a price target in a research report on debt or equity securities
• May show actual past performance (a fund piece presenting its returns must also give the standardized performance figures), but may not use that record to support a prediction: a brochure that cites 10 years of returns as the basis for forecasting future returns is misleading
• A retail communication that compares investments or services must disclose all material differences between them, such as objectives, costs and expenses, liquidity, safety, guarantees or insurance, fluctuation of principal or return, and tax features
• Cannot make exaggerated, unwarranted, or misleading claims
• Retail communications must clearly identify the firm

Think of it this way: The content rules are the same across all three categories. What changes is the level of approval required before use. Even a message to a single institutional client must still be fair and balanced.

Exam Tip: Gotchas

• Institutional communications still require supervision. "No pre-use principal approval" does not mean "no oversight." The firm must still have procedures to review them.
• All three categories share the same core content standards. The difference is in the approval process, not in what you can say.
• Past performance may be shown, not projected. Listing a fund's actual 1-, 5-, and 10-year returns is fine, with the standardized performance figures. Using that record to suggest what the fund will earn next is misleading, because it implies past performance will recur.

Public Appearances

Seminars, webinars, radio interviews, and live presentations are classified as public appearances. They follow the same content standards as written communications but have separate supervisory requirements:

• No pre-use principal approval is required for scripts or slides
• The firm must still supervise the content and train the presenter
• If a recording is later distributed to more than 25 retail investors, it becomes a retail communication and requires principal approval

FINRA Filing Requirements

FINRA can require firms to file certain communications with FINRA's Advertising Regulation Department:

• New member firms, for their first year of membership, must file retail communications used in public media (such as a website or newspaper) at least 10 business days before first use
• Options communications: a retail communication about standardized options that is used before the customer receives the options disclosure document must be submitted to FINRA at least 10 calendar days before use
• FINRA may also require filing of specific types of communications on an ongoing basis
• Investment company communications: a fund advertisement, such as a newspaper ad for a mutual fund, is a retail communication. Most retail communications promoting a specific mutual fund, exchange-traded fund, or other registered investment company (or a fund family) must be filed within 10 business days after first use. This duty reaches established firms, not only new ones
• FINRA reviews; it does not endorse. A firm may describe FINRA's review of a filed communication only as "Reviewed by FINRA" or "FINRA Reviewed," and may not imply that FINRA endorses the firm or the security

Exam Tip: Gotchas

• Approval comes from a registered principal of your own firm. The approval a retail communication needs before first use, a mutual fund ad included, comes from that principal, not from FINRA, the Securities and Exchange Commission (SEC), or a state regulator. Filing with FINRA is a separate step.
• Established firms still file some communications. The first-year filing requirement is a common test point, but a retail communication promoting a specific mutual fund is filed within 10 business days after first use even by a firm long past its first year.
• Options communications have their own filing rules separate from the general retail communication requirements. The 10-calendar-day advance filing covers retail options communications used before the options disclosure document is delivered, not every options communication.

What Should You Check on Exam Day?

• Can you explain the difference between a retail communication and correspondence based on the 25-investor threshold?
• Do you know why institutional communications still require supervision even without pre-use principal approval?
• Can you state which exceptions allow a communication to project performance, why past returns cannot support a forecast, and what a comparison must disclose?
• Do you know when a public appearance recording becomes a retail communication?
• Can you say who approves a mutual fund ad before use, and when it is filed with FINRA by a new firm and by an established one?