Types

FINRA categorizes communications into specific types, usually based on who will receive them. This lets FINRA apply stricter rules to communications aimed at larger, less sophisticated audiences, and lighter rules to communications aimed at smaller or more sophisticated audiences.

Correspondence

A written or electronic communication sent to 25 or fewer retail investors within a 30-day period is considered correspondence. This typically includes personal letters, emails, or messages sent to a small group of investors.

Because the audience is small, correspondence is lower on FINRA’s priority list. As a result:

• Correspondence is not required to be filed* with FINRA.
• Correspondence does not require principal (supervisor) pre-approval.

Even so, the firm should still supervise and monitor correspondence, and it is always subject to FINRA review**.

*Filing with FINRA essentially means sending FINRA a copy of the communication. This gives regulators quick access if they have concerns or receive an investor complaint.

**“Subject to review” means FINRA can request a copy of the communication.

Retail communications

A written or electronic communication sent to more than 25 retail investors within a 30-day period is considered a retail communication. FINRA focuses more closely on these communications because many non-institutional (retail) investors may see them.

Examples include websites, commercials, newspaper ads, and billboards.

To regulate these communications, FINRA generally requires*:

• Firms to file copies of retail communications with FINRA.
• A firm principal (supervisor) to pre-approve retail communications before first use.

*Not all retail communications are required to be filed with FINRA. The filing exclusions are detailed below.

Sometimes retail communications compare securities or investment products. For example, see Charles Schwab’s broker comparison. When a retail communication makes comparisons like this, FINRA requires disclosures of all material differences, including:

• Investment objectives
• Costs and/or expenses
• Liquidity
• Safety
• Guarantees or insurance (if they exist)
• Fluctuations of principal or returns
• Tax implications

Retail communications must also prominently disclose the member firm’s name and any relationship between the member and any non-members named in the communication.

A testimonial is a common situation where a non-member is named. For example, a famous athlete (a non-member) endorses the trading capability of a registered broker-dealer. If a testimonial is used, FINRA requires these guidelines to be followed:

• The person providing the testimonial must have the knowledge and experience necessary to make the endorsement
• The member firm must state:
  • Testimonial may not be representative of the experience of other customers
  • Testimonial is no guarantee of future success
  • Testimonial has been paid for if the endorser has been paid more than $100*

*The payment for the testimonial may not necessarily involve cash. For example, a broker-dealer gives a watch valued at $100,000 to a celebrity providing a testimonial. Although no cash traded hands, the celebrity was paid well over $100 in value. The testimonial must be identified as “paid for.”

Many retail communications must be filed with FINRA. Depending on the situation, retail communications may need to be filed before first use (pre-filed) or after first use (post-filed).

Filed 10 business days prior to first use

• Any retail communication from a firm in its 1st year of business
• Material relating to investment companies if containing performance rankings or comparisons
• Material relating to security futures

Filed 10 business days after first use

• Material relating to investment companies if NOT containing performance rankings or comparisons
• Direct participation program (DPP) communications
• Collateralized mortgage obligation (CMO) communications
• Securities derivatives communications

Not all retail communications are required to be filed. FINRA specifically identifies these as excluded from filing requirements:

• Previously filed communications that have not changed
• Previously filed communication templates, where only statistics are updated
• Communications with no mention of products, services, or recommendations
• Communications that only mention the member’s ticker symbol
• Communications that only mention the securities the member acts as a market maker for
• Disclosure-related documents (e.g., a prospectus, shareholder reports)
• Press releases only made available to the media
• Reprints or excerpts of articles made by publishers (e.g., a newspaper)
• Communications made on online interactive forums (e.g., a member replies to a comment on Instagram)

Institutional communications

Institutional communications are written or electronic communications sent to institutions. Because institutions are generally expected to evaluate information independently and recognize misleading claims, FINRA applies less restrictive rules here.

Like correspondence:

• Firms are not required to file institutional communications with FINRA.
• Institutional communications do not require principal pre-approval.

These communications should still be supervised by the firm and are always subject to FINRA review.

Institutions include banks, broker-dealers, underwriters, and insurance companies.

Public appearances

FINRA defines a public appearance as:

When sponsoring or participating in a seminar, forum, radio or television interview, or when otherwise engaged in public appearances or speaking activities that are unscripted

The key word is unscripted. If a registered representative gives a scripted seminar, that communication is treated as a form of retail communication (if there are more than 25 attendees).

Because public appearances are unscripted, principal pre-approval and pre-filing with FINRA aren’t practical. Instead, FINRA requires firms to establish written supervisory procedures for representatives to follow:

Such procedures must provide for the education and training of associated persons who make public appearances as to the firm’s procedures, documentation of such education and training, and surveillance and follow-up to ensure that such procedures are implemented and adhered to. Evidence that these supervisory procedures have been implemented and carried out must be maintained and made available to FINRA upon request.

Representatives must also have a reasonable basis for any recommendations made during a public appearance. In other words, recommendations can’t be improvised without support. For example, FINRA would likely punish a representative who says, “I recommend everyone put all their money into meme stocks” during a live TV broadcast, because there is no reasonable basis for that recommendation.