FINRA sets many rules and communications-related requirements for financial professionals. Some requirements apply to all communications, while others depend on the communication type. In the next chapter, you’ll look at different communication types and the regulations that apply to each. For now, the focus is on general communication standards.
FINRA requires firms to keep records of all communications for 3 years, regardless of the communication type. In addition, communications from the most recent 2 years must be easily accessible. If FINRA requests a copy of a communication from the last 2 years, they expect the firm to produce it promptly.
All client communications must be governed by written supervisory procedures created by the firm. Without clear written directives, representatives may say something inaccurate or misleading, which can expose the firm to liability (lawsuits or arbitration). Many firms provide these procedures in employee handbooks that outline best practices and guidelines for communicating with clients.
FINRA’s general communication standards include the following:
No false, exaggerated, unwarranted, promissory, or misleading statement or claim
This is the core rule: communications must not mislead investors. Financial professionals may not publish, circulate, or distribute any communication they know contains an untrue statement of material fact, or that is otherwise false or misleading.
Information may be placed in a legend or footnote only if such placement would not inhibit an investor’s understanding of the communication
You may have seen ads where the main message is presented clearly, but important disclosures are rushed at the end or buried in fine print. For example, this young voice actor’s parody of an ad for a new truck highlights how disclosures can be delivered so quickly that they’re easy to miss.
FINRA does not want material facts about a product or service hidden in legends, footnotes, or at the end of an ad in a way that reduces understanding. If the information is important for an investor to know, it must be presented clearly and prominently. Less significant details may be placed in these sections.
Members must ensure that statements are clear and not misleading within the context in which they are made
This standard focuses on clarity and balance. Even if a statement is technically true, it can still be misleading if it’s presented without necessary context. Communications should clearly explain what’s being offered, including relevant risks and the uncertainty that comes with investing.
Members must consider the nature of the audience to which the communication will be directed
The intended audience affects how a communication should be written.
Retail investors are non-professional investors who typically invest for themselves or their families, often with less capital and fewer resources. Communications to retail investors should avoid industry jargon and overly complex language, while still fully disclosing relevant risks.
Institutional investors are professional investors who invest on behalf of clients. These are often large organizations with significant capital and resources (e.g., banks, insurance companies, and financial firms). Communications to institutional investors may be more complex and less simplified (within reason).
Communications may not predict or project performance
Financial professionals are generally prohibited from projecting the performance of a security. For example, a registered representative would violate FINRA communication rules by saying, “I expect AMZN stock to rise 25% over the next year.” Because market outcomes are uncertain, performance projections can easily mislead investors - especially if an investor trades based on the statement and the result doesn’t match the projection.
Regardless, FINRA does not prohibit the following:
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