Monday, May 6, 2013

FINRA Rules on Communications

FINRA is forever tweaking the definitions used for the communications put out by a member firm. A few years ago, I had to put serious effort into explaining how sales literature differed from advertising, and all the special rules on public appearances and independently prepared reprints. Going forward, FINRA only wants to work with three specific categories of communications: correspondence, retail communications, and institutional communications. Of these, only retail communications are subject to prior principal approval and filing copies with FINRA. Correspondence and institutional communications have to be monitored, and principals need to make sure that these communications are not misleading. They just are not subject to the heightened supervision of communications going out to > 25 retail investors. It is a little strange to see FINRA rely so heavily on this arbitrary number 25, but they do. The exact same thing--a seminar handout, for example--is correspondence if delivered to 25 or fewer retail investors but becomes a retail communication if delivered to more than 25. What we used to call advertising and sales literature is now either correspondence or retail communications depending on how large the audience is. FINRA also no longer cares whether the communication goes to an existing customer or a prospect--again, the number 25 is suddenly the determining factor. Pass Your Series 7 Exam