FINRA establishes many rules and communications-related requirements for financial professionals. Some rules apply to all communications, while others depend on the specific 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 kept in a way that makes them easily accessible. If FINRA requests a copy of a communication from the last 2 years, they expect the firm to produce it promptly.
All forms of client communication must be governed by written supervisory procedures created by the firm. Without written direction, representatives may misspeak or mislead investors, which can expose the firm to liability (lawsuits or arbitration). Many firms provide these procedures in employee handbooks that outline best practices and general guidelines for working 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
Disclosures can’t be “buried” where an investor is unlikely to notice or understand them. You may have seen ads where the appealing claims are presented clearly, while important limitations are rushed at the end or tucked into fine print (for example, this young voice actor’s parody of an ad for a new truck).
FINRA does not want material facts about a product or service hidden in a legend, footnote, or at the end of an ad in a way that reduces an investor’s ability to understand the message. If the information is important for an investor to evaluate the communication, 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 context. Even if a statement is technically true, it can still be misleading if it lacks necessary context or omits key risks. Communications should present benefits and risks in a balanced way and avoid wording that could create an inaccurate impression.
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 have less capital to invest, and may have less access to specialized resources. Communications to retail investors should avoid unnecessary jargon and complex language while still disclosing all relevant risks.
Institutional investors are professional investors who invest clients’ money. These are typically 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 predicting or 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, statements like this can mislead clients who rely on them.
FINRA does not prohibit the following:
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