Communications & Advertising
Communication Categories
FINRA Rule 2210 establishes a comprehensive framework governing all communications by member firms and their associated persons. The rule classifies communications into three categories, each with different approval, review, and filing requirements. Understanding these categories and their associated obligations is critical for the Series 24 exam because the principal is directly responsible for ensuring that all firm communications comply with applicable rules.
Three Categories of Communications
- Retail Communication: Any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30-calendar-day period. Retail investors include any person other than an institutional investor. Examples include advertisements, websites, social media posts, brochures, form letters sent to more than 25 retail investors, market commentaries posted online, and sales literature distributed broadly.
- Institutional Communication: Any written (including electronic) communication that is distributed or made available only to institutional investors and not to any retail investor. Institutional investors include registered broker-dealers, government entities, employee benefit plans with at least 100 participants, qualified institutional buyers (QIBs), banks, insurance companies, registered investment companies, and any person with total assets of at least $50 million.
- Correspondence: Any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30-calendar-day period. This includes individual emails, letters, and text messages to a small number of customers.
| Feature | Retail Communication | Institutional Communication | Correspondence |
|---|---|---|---|
| Audience | > 25 retail investors in 30 days | Institutional investors only | ≤ 25 retail investors in 30 days |
| Prior Principal Approval | Required before first use | Not required (post-use review) | Not required (post-use review) |
| Supervisory Review | Pre-use by registered principal | Firm must establish review procedures | Firm must establish review procedures |
| FINRA Filing | Required for certain categories | Generally not required | Not required |
| Record Retention | 3 years from last use | 3 years from last use | 3 years |
Exam Tip
The critical distinction: Retail communications require prior principal approval before first use or first use after material change. Institutional communications and correspondence require the firm to establish review procedures, but do not require prior approval by a principal before use. The 25-person threshold and 30-day period are frequently tested.
Content Standards for All Communications
Regardless of the communication category, all member firm communications must comply with FINRA's content standards. These standards ensure that communications are fair, balanced, and not misleading. Violations of content standards are among the most frequently cited in FINRA enforcement actions.
General Content Standards
- Fair and balanced: All communications must present a fair and balanced picture of the risks and potential benefits. A communication that emphasizes potential returns without adequate disclosure of risks is misleading.
- No misleading statements: Communications must not contain false, exaggerated, unwarranted, promissory, or misleading statements or claims. Statements must not omit material facts that would make the communication misleading.
- No guarantees: Communications must not predict or project performance, imply that past performance will recur, or make exaggerated or unwarranted claims.
- Sound basis: Recommendations or claims must be based on reasonable analysis and factual support. The firm must be able to substantiate any factual claim made in a communication.
- Clear identification: All communications must clearly identify the member firm. Communications must not imply that a government agency (SEC, FINRA, SIPC) endorses, approves, or recommends the firm or its products.
Specific Product Communications
Certain products have additional communication requirements. For example, communications about options must include the statement that options involve risk and are not suitable for all investors, and must reference the Options Disclosure Document (ODD). Communications about mutual funds must not be misleading about the nature of the investment, and must include standardized performance data if performance is referenced. Communications about variable insurance products must be fair and balanced, clearly identifying guaranteed and non-guaranteed elements.
Warning
Social media posts, even personal posts by registered representatives that reference securities or the firm's business, are subject to FINRA communications rules. A registered representative who posts investment recommendations on a personal social media account is creating retail communications that require prior principal approval if distributed to more than 25 retail investors. Principals must monitor social media use.
FINRA Filing Requirements
Certain retail communications must be filed with FINRA's Advertising Regulation Department. Filing requirements serve as an additional layer of oversight beyond the firm's internal review. The filing requirements vary based on the type of communication, the product being discussed, and the firm's history.
Communications Requiring Filing
- New member firms (first year): During a member's first year of FINRA membership, all retail communications must be filed with FINRA at least 10 business days prior to first use. This pre-use filing requirement ensures that new firms receive additional oversight during their initial period of operations.
- Options communications: Retail communications concerning options must be filed with FINRA within 10 calendar days of first use (post-use filing).
- Investment company communications: Retail communications about mutual funds and other investment companies must be filed within 10 business days of first use.
- Government securities communications: Retail communications regarding government securities must be filed within 10 business days of first use.
- CMOs and structured products: Retail communications about collateralized mortgage obligations (CMOs) and similar structured products must be filed at least 10 business days prior to first use.
Retention Requirements
All communications, regardless of category, must be retained for at least 3 years from the date of last use, along with the name of the person who prepared the communication, the name of the principal who approved it (if applicable), the date it was first used, and evidence of any FINRA filing. Electronic communications, including emails, must be retained in a format that is complete, accurate, and accessible for the required retention period.
Key Takeaway
New member firms during their first year must file ALL retail communications with FINRA at least 10 business days BEFORE first use (pre-use). Established firms file certain categories of retail communications within 10 business days/calendar days AFTER first use (post-use). The distinction between pre-use and post-use filing is a key exam topic.
Deep Dive Social Media and Digital Communications
FINRA has issued extensive guidance on social media and digital communications. Key principles include:
- Static content (e.g., a firm's website, profile pages, pinned posts) is generally considered retail communication and requires prior principal approval
- Interactive content (e.g., real-time posts, comments, chat messages) may be treated as correspondence if directed to 25 or fewer retail investors, but firms must have supervisory procedures in place
- Third-party content: If a firm or its associated person shares, endorses, or "likes" third-party content, the firm may become responsible for that content under FINRA rules
- Testimonials and endorsements: Firms may use customer testimonials in communications, subject to SEC and FINRA requirements including disclosure of whether the testimonial provider was compensated and whether they are a client
- Recordkeeping: All social media communications must be captured and retained in compliance with SEC Rule 17a-4, regardless of the platform used
Check Your Understanding
Test your knowledge of communications and advertising rules. Select the best answer for each question.
1. A communication sent to 30 retail investors over a 30-day period is classified as:
2. During a new member's first year of FINRA membership, retail communications must be filed with FINRA:
3. Which type of communication requires prior principal approval before use?
4. An institutional investor under FINRA Rule 2210 must have total assets of at least:
5. Communications about which product must be filed with FINRA within 10 calendar days of first use?