How often must a member firm provide a copy of the FINRA procedures to its customers?

FINRA Rule 2210 is a comprehensive regulation governing the approval, review and recordkeeping of a broker-dealer’s communications and correspondences. It also concerns their filing requirements and review procedures, alongside content standards and limitations on the use of the FINRA name. Finally, the rule contains specific standards for communications that occur as part of public appearances.

The rule itself is complicated and references many other FINRA rules and other laws that broker-dealers must follow. Understanding and complying with this rule is critical to your firm’s success. We’ve broken down some of the many essential points to be aware of regarding FINRA 2210 to help you guide your communications and correspondence with retail and institutional investors.

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In this resource, we’ll cover:

• The categories of public communication
• Occasions when FINRA members must file retail communications 10 Business Days in Advance
• How long you need to keep marketing records
• What the record needs to include
• How third-party social posts affect your responsibilities
• Being fair and balanced
• Links required on websites
• Research reports that don’t need to be filed
• Realtime interactive conversations
• Disclosures for testimonials

1. YOU MUST UNDERSTAND THE THREE CATEGORIES OF PUBLIC COMMUNICATION

The three categories of communications with the public, as defined by FINRA Rule 2210, are:

RETAIL COMMUNICATION

Retail communication involves any written communication, including electronic communications, delivered to or made available to more than 25 retail investors during any 30 calendar-day period.

FINRA 2210 also defines a retail investor as any person other than an institutional investor, whether that person has an account with the broker-dealer firm or not.

FINRA Rule 2210 includes several requirements governing retail communications. For example, a qualified registered principal of the broker-dealer organization must approve every advertisement before its first use or filing with FINRA’s Advertising Regulation Department, whichever comes first. A Supervisory Analyst could approve retail communications regarding:

• Research reports on debt and equity securities.
• Any research report-related retail communications that fall under FINRA Rule 2241(a)(11)(A) or FINRA Rule 2242(a)(3)(A).
• Other research communications the Supervisory Analyst knows.
• Relationship summaries to retail investors through Form CRS, which is required for broker-dealers and investment advisers under SEC Regulations Best Interest (Reg BI).

However, the Supervisory Analyst may not approve a retail communication requiring a registration they do not have. There are also a few exemptions to the retail communications approval requirements.

CORRESPONDENCE

In contrast, correspondence involves any written communication, including print and digital communications, made available to or distributed to 24 or fewer retail investors over any 30 calendar-day period. Anything considered a correspondence requires supervision and review following Rules 3110(b) and 3110.06-3110.09.

INSTITUTIONAL COMMUNICATION

If a written communication, electronic or otherwise, is delivered or made available only to institutional investors and does not include the firm’s internal communications, it qualifies as an institutional communication.

FINRA defines institutional investors as any entity such as the following:

• A person who meets the definition contained in FINRA Rule 4512(c), regardless of whether they have an account with your firm.
• A government entity or subdivision of such an entity.
• An employee benefit plan or plans shared by employees of the same employer that meet the Internal Revenue Code (IRC) Section 403(b) Tax Sheltered Annuity Plans or Section 457 Deferred Compensation Plans and have at least 100 participants — note that the individual participants of these plans are not considered institutional investors.
• An employee benefit plan that meets the definition contained in the Securities Exchange Act of 1934 Section 3(a)(12)(C) that has at least 100 participants. Again, note that the individual participants are not institutional investors.
• A member or registered person of a FINRA member broker-dealer.
• A person acting solely on behalf of an institutional investor.

If you ever have a reason to believe that a communication or an excerpt of it will be forwarded or made available to retail investors, do not treat the communication as an institutional communication.

2. THERE ARE SOME OCCASIONS WHEN FINRA MEMBERS MUST FILE RETAIL COMMUNICATIONS 10 BUSINESS DAYS IN ADVANCE

FINRA identifies several FINRA members and communications that must be filed through FINRA’s Advertising Regulation Department 10 days before first use.

The first case is for new FINRA members. For the first year of a broker-dealer’s membership with FINRA, they must file all retail communications in advance. The starting date of your first year is determined by the date your FINRA membership became effective, as listed in the Central Registration Depository (CRD®). During the first year of membership, a broker-dealer must file all retail communications with FINRA’s Advertising Regulation Department 10 business days before transmitting them to retail investors.

New members must file any communications published via:

• Public websites
• Newspapers
• Magazines or periodicals
• Radio
• Television
• Telephone or audio recording
• Video display
• Signs or billboards
• Motion pictures
• Telephone directories

The next case is for members who have violated FINRA 2210 rules. If FINRA’s Advertising Regulation Department determines any member has violated FINRA 2210 rules, it may require that member to file all retail communications 10 business days in advance, as well. The Department will notify the member in writing of which communications require advance filing and how long the member will have to file communications in advance. Contact Vigilant and see how we can help you comply with Rule 2210.

Certain retail communications must always be filed 10 business days in advance, and FINRA members must withhold them from publication until they have implemented all changes as specified by the Department. Such communications include:

• Rankings and performance comparison claims that are not generally published or are anything the investment company created.
• Security features communications, including those submitted to another self-regulatory organization and those that only reference security features contained in a listing of the FINRA member’s services.

3. YOU MUST KEEP A RECORD OF YOUR MARKETING COMMUNICATIONS FOR 3 YEARS

FINRA Rule 2210 Section 4 includes requirements for recordkeeping. All retail communications and institutional communications require detailed records. According to the rule, the retention period must align with SEA Rule 17a-4(b) requirements. Per these requirements, every broker-dealer must preserve their records for at least three years. For the first two years, they must keep these records in an easily accessible place.

4. RECORDS MUST INCLUDE THE DATE OF FIRST USE AND RELATED DETAILS

On any communications or correspondence that FINRA requires you to keep records on, you must include:

• The date of first use.
• The name and title of the registered principal who approved the marketing communications.
• A copy of the communications.
• Information on the source of any statistics, tables, charts, graphs or other illustrations included in the communication.

A few additional details must be kept in your records under certain circumstances, such as:

• If a retail or institutional communication was not approved before first use by a registered principal, keep a record of the person who prepared and distributed the communication.
• For retail communications where principal approval is not required, as determined by FINRA Rule 2210(b)(1)(C), record the name of the FINRA member who filed the communication with the Advertising Regulation Department along with the corresponding review letter from the Department.
• Any retail communications that include performance rankings or comparisons of registered investment companies must record the ranking or performance used in the communication.

5. THIRD-PARTY POSTS ON SOCIAL MEDIA ARE NOT USUALLY ATTRIBUTABLE TO YOUR FIRM

FINRA’s Notice 10-06 was released in 2010 to clarify NASD Rule 2210, which FINRA Rule 2210 has replaced. The contained rulings on third-party social media posts hold effect with FINRA Rule 2219, to the relief of many dealer-brokers. Specifically, the notice clarifies that FINRA does not generally treat third-party posts on the firm’s social media pages or posts tagging the firm’s accounts as the firm’s own retail communications. Therefore, your firm does not need to seek prior principal approval or meet content and filing requirements for these posts.

It’s crucial to note that specific third-party posts may become attributable to the firm under certain circumstances. FINRA may consider the posts as retail communications when the firm has involved itself in preparing the content or approved or endorsed the content, either implicitly or explicitly. The Security and Exchange Commission (SEC) refers to the former as “entanglement” and the latter as “adoption.”

One way to limit your liability for such posts is to use a disclaimer informing customers that third-party posts have not been reviewed for accuracy and do not reflect your firm’s views. While not required, such a disclaimer that is prominent enough for investors to see and understand may aid your case as FINRA determines whether a firm has become entangled with or has adopted a particular third-party post.

Another step might be to monitor these posts. While not required, monitoring third-party posts helps a firm mitigate the perception that a firm is entangled with or adopting any of these posts.

6. YOU MUST BE FAIR AND BALANCED WHEN PROMOTING A SPECIFIC INVESTMENT PRODUCT

Many of the requirements discussed in Rule 2210 concern how broker-dealers can promote specific investment products. Rule 2210 requires a “fair and balanced” approach to any marketing which provides both the positives and negatives to any product or service shown in equal prominence and in the same place. Usually, such promotions require a disclosure that provides retail investors with the facts and background they need to evaluate their options.

7. YOU MUST LINK TO AND REFERENCE BROKER CHECK ON CERTAIN WEBSITE PAGES

According to FINRA Rule 2210(d)(8)(A), all of your firm’s websites must include an easily visible reference and hyperlink to BrokerCheck. BrokerCheck is a free, publicly accessible tool for potential investors to research brokers, brokerage firms, investment adviser firms and advisers. It delivers a report on any current FINRA members and any who have been registered within the past 10 years and some information about older, inactive memberships.

This report includes:

• The broker’s qualifications.
• Registrations and employment history.
• Customer disputes.
• Disciplinary events.
• Records of certain criminal and financial matters.
• Any recent comments from the broker.

There are two instances where a broker-dealer must reference and link to BrokerCheck, including:

• The first webpage they intend retail investors to view.
• Any web pages that include professional profiles of one or more registered persons who work with retail investors.

These requirements do not apply to:

• A FINRA member who does not provide products or services to retail investors.

To satisfy these rules, a broker-dealer has two options. First, they can include a link to the BrokerCheck homepage. Alternatively, they can use a direct link to the firm or registered person’s individual BrokerCheck pages. FINRA provides a series of graphics and widgets firms and individuals can use on their websites to provide retail investors with easy access to BrokerCheck.

8. CERTAIN RESEARCH REPORTS DO NOT NEED TO BE FILED WITH FINRA

Specific research reports are exempt from the FINRA filing requirements. First, Rule 2210 uses the same definition of “research report” listed in Rule 2241(a)(11). In short, a research report includes any written communication, including an electronic one, with an analysis of equity securities of individual companies or industries. It must provide enough information to base investment decisions.

Rule 2210(c)(7)(O) indicates that research reports that only concern securities listed on the national security exchange do not have to be filed with FINRA. The only exception is for research reports that meet the filing requirements as per the Investment Company Act Section 24(b), which requires investment companies to file three copies of certain communications with the SEC.

Further, any investment fund research report deemed not to constitute an offer of sale or an offer to sell a security is also not required to be filed with FINRA. Refer to the Securities Act sections 2(a)(10) and 5(c) and Securities Act Rule 139b for more information on what may be exempt from FINRA filing.

However, all foreign research reports still need to be approved by a qualified principal or supervisory analyst.

9. FINRA DOES NOT REQUIRE BROKER-DEALERS TO FILE REAL-TIME INTERACTIVE CONVERSATIONS

While some social media content is considered static, most platforms allow for real-time communication, such as comments on posts or direct messages. This concept presents some concerns for FINRA members because such content needs to be timely while also requiring supervision to ensure accuracy and alignment with FINRA content standards. Specific interactive content posts on electronic forums such as chat rooms and social media do not need pre-approval by a registered principal.

However, even though they do not require filing under FINRA Rule 2210, they still require filing with other agencies. Depending on the situation, these real-time conversations may require filing as per Section 24(b) of the Investment Company Act or Rule 497 of the Securities Act.

10. TESTIMONIALS MUST INCLUDE THE NECESSARY DISCLOSURES

FINRA Rule 2210(d)(6) discusses requirements for Testimonials. First, any person providing a testimonial that discusses a technical aspect of investing must have the knowledge and experience to form a valid opinion.

Any retail communications or correspondences that include testimonials about the FINRA member’s or product’s investment advice or investment performance must show some prominent, relevant disclosures. The testimonial must disclose:

• That it may not be representative of other clients’ experiences.
• That it is not a guarantee of future success or performance.
• If the FINRA member paid more than $100 in value in exchange for the testimonial, that it is a paid testimonial.

CONTACT VIGILANT COMPLIANCE WITH YOUR FINRA 2210 QUESTIONS

Regulations like FINRA Rule 2210 include many requirements for how your firm must approve and keep records of your retail and institutional communications, as well as the content they can contain. All of a broker-dealer’s marketing, from email to television and everything in between, is subject to this rule in one way or another. Following these rules is crucial to avoid legal concerns and liabilities while still marketing your products and services.

Vigilant Compliance can help make this task easier through our compliance solutions for broker-dealers. Please feel free to contact us with all your questions about FINRA 2210 and other FINRA rules you may be subject to. We’ll be happy to assist you and help you ensure compliance.

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Post updated by Vigilant on 10/26/2022