FINRA Rule 2210 classifies all firm communications with the public into three categories, each with different approval, recordkeeping, and content requirements.
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Retail communication is any written (or electronic) communication distributed or made available to more than 25 retail investors within any 30-calendar-day period.
Examples:
Pre-approval requirement: Retail communications must be reviewed and approved by a qualified principal (supervisor) before use, with limited exceptions. This is the most heavily regulated category.
Filing with FINRA: New member firms must file all retail communications with FINRA for review 10 business days before first use for the first year of membership. Certain product types (mutual fund advertisements, variable annuity ads) may require FINRA filing.
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Institutional communication is written (or electronic) communication distributed exclusively to institutional investors -- those with at least $50 million in invested assets or other qualifying characteristics (registered investment advisers, other broker-dealers, banks, insurance companies, government entities).
Examples:
Approval requirements: Less stringent than retail communication. No pre-approval requirement by rule, BUT the firm's written supervisory procedures (WSPs) must provide for review.
Recordkeeping: Three years.
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Correspondence is any written (or electronic) communication distributed to 25 or fewer retail investors within any 30-calendar-day period.
Examples:
Approval requirements: No pre-approval required. However, firms must supervise correspondence and conduct spot checks. If a principal determines that a communication must be reviewed, it must be reviewed before use.
Recordkeeping: Three years.
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FINRA requires firms to maintain records of communications:
The SEC's Books and Records rules (Rules 17a-3 and 17a-4) generally require a 3-year retention period (2 years in an accessible location, 3 years total), with a 6-year requirement for certain records.
Important: Communications records must be maintained in a non-alterable format and be accessible for review.
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FINRA rules permit testimonials and endorsements but with specific conditions:
Past performance disclosures: Any testimonial or performance claim must include appropriate disclosure that past results do not guarantee future performance.
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Social media creates unique compliance challenges. Key FINRA guidance:
Static vs. interactive content:
Personal social media accounts: Registered representatives using personal social media to discuss their business activities (recommending securities, promoting the firm's services) are making communications on the firm's behalf. These are subject to FINRA rules even if the account is personal. Firms must supervise representatives' business-related social media use.
Recordkeeping: All business-related social media communications must be retained.
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Research reports are written communications that analyze one or more securities or issuers and provide investment recommendations. They are subject to FINRA Rule 2241 (equity research) or 2242 (debt research).
Analyst conflicts of interest disclosures:
Quiet period (after an IPO):
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A tombstone advertisement is a limited announcement of a securities offering. Traditional tombstones contain only basic factual information:
Tombstones are not considered sales literature requiring extensive disclosure because they contain minimal substantive content. They are typically published after an offering is effective.
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Quiz Questions:
Q1. A registered representative sends a personal email to 15 of his customers recommending they purchase shares of a specific stock. Which FINRA communication category does this fall under?
A) Retail communication, requiring pre-approval by a principal B) Institutional communication, because the rep knows his customers C) Correspondence, because it was distributed to 25 or fewer retail investors D) No category applies -- personal emails are not covered by FINRA rules
Answer: C -- Correspondence covers written communications distributed to 25 or fewer retail investors in a 30-day period. An email to 15 customers meets this definition. Correspondence does not require pre-approval (unlike retail communication), but the firm must supervise it through spot checks and reviews. Personal emails about business activities ARE covered by FINRA rules (D is wrong).
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Q2. A broker-dealer's marketing department creates a new advertisement for a retail mutual fund to be published nationally in financial magazines. What approval is required before the advertisement can run?
A) No approval is required if the advertisement is factually accurate B) A qualified principal must review and approve the advertisement before it is published C) The advertisement must be filed with the SEC first D) Customer approval is required before any advertising can run
Answer: B -- Retail communications (including advertisements) must be reviewed and approved by a qualified principal before use. National magazine advertisements reaching more than 25 retail investors in a 30-day period clearly qualify as retail communications. FINRA (not the SEC) may also require filing for certain new product ads, but principal approval is the core requirement.
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Q3. A managing underwriter of a recent IPO wants to publish a research report favorable to the newly public company 8 days after the IPO was completed. Is this permissible?
A) Yes, because 8 days is sufficient time after an IPO B) No, because the managing underwriter must observe a 10-day quiet period before publishing research C) Yes, if the report includes appropriate risk disclosures D) No, because research reports on IPO companies require SEC approval
Answer: B -- FINRA rules impose a 10-day quiet period on the managing underwriter (book runner) of an IPO before research on the issuer may be published. The purpose is to prevent analyst "hype" from conflicted parties who profited from the offering. Publishing at 8 days would violate this quiet period. Syndicate co-managers face a 3-day quiet period.
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Q4. A financial influencer with 500,000 social media followers is paid $10,000 by a broker-dealer to post glowing reviews of the firm's services. The influencer discloses the payment. Under FINRA rules, which statement BEST applies?
A) The arrangement is fully compliant because the compensation was disclosed B) The firm must also ensure the testimonial does not make false or misleading statements, and the firm remains responsible for the communication C) Paying social media influencers is prohibited under FINRA rules D) The disclosure is optional if the influencer genuinely uses the firm's services
Answer: B -- Testimonials and endorsements are permitted under FINRA rules, but disclosure of compensation is required (which was done), AND the content must not be false or misleading. Most importantly, the firm (not just the influencer) is responsible for ensuring the communication complies with FINRA rules. The firm must supervise and review the content. Simply paying for disclosure does not automatically make the communication compliant.
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Q5. Under FINRA rules, for how long must a broker-dealer retain records of most retail communications and correspondence?
A) 1 year B) 2 years C) 3 years D) 6 years
Answer: C -- FINRA rules and SEC Books and Records rules generally require a minimum 3-year retention period for communications records, including retail communications and correspondence. Some records (such as certain partnership records or records related to litigation) must be kept 6 years, but the standard for communications is 3 years. One year (A) or two years (B) would be insufficient for regulatory purposes.