4.4 Correspondence

Communications with the Public

FINRA Rule 2210 governs how broker-dealers communicate with the public. Understanding the three categories of communications and their requirements is essential for compliance.

Three Categories of Communications

FINRA Rule 2210 defines three types of written communications:

Correspondence: 25 or fewer retail investors in 30 days

Retail Communications: More than 25 retail investors in 30 days

Institutional Communications: Only to institutional investors

Correspondence

Correspondence is written communication to 25 or fewer retail investors within a 30-day period.

Examples of Correspondence

- Personal emails to individual clients

- Individual client letters

- Small group communications

- One-on-one messages

Requirements for Correspondence

Principal Pre-approval: Not required

FINRA Filing: Not required

Supervision: Subject to firm review policies

Recordkeeping: Must be retained per rules

Supervision of Correspondence

While pre-approval is not required, firms must:

- Establish written supervisory procedures

- Review a sample of correspondence

- Ensure compliance with content standards

- Train representatives on requirements

Key Point: Correspondence has the lightest regulatory requirements because it reaches the fewest people.

Retail Communications

Retail communications reach more than 25 retail investors within a 30-day period.

Examples of Retail Communications

Advertising: TV, radio, print ads, billboards

Sales Literature: Brochures, research reports, newsletters

Website Content: Public-facing web pages

Social Media: Public posts, advertisements

Requirements for Retail Communications

Principal Pre-approval: Generally required

FINRA Filing: Required for certain types

Content Standards: Must be fair and balanced

Recordkeeping: Retain for 3 years

FINRA Filing Requirements

New firm (first year): Must file all retail communications

Options communications: Pre-file 10 days before use

Investment company rankings: Pre-file 10 days before use

CMOs and structured products: File within 10 days of first use

Content Standards for Retail Communications

All retail communications must:

- Be fair and balanced

- Provide sound basis for evaluation

- Not contain exaggerated claims

- Include required disclosures

- Present risks alongside benefits

Institutional Communications

Institutional communications are distributed only to institutional investors.

Institutional Investors Include

Financial Institutions: Banks, insurance companies

Registered Entities: Broker-dealers, investment advisers

Large Entities: Organizations with $50M+ in assets

Qualified Purchasers: As defined under securities laws

Requirements for Institutional Communications

Principal Pre-approval: Not required

FINRA Filing: Not required

Content Standards: Must not be misleading

Recordkeeping: Must be retained

Why Lighter Requirements?

Institutional investors are presumed to be:

- More sophisticated

- Better able to evaluate information

- Less in need of regulatory protection

- Capable of asking clarifying questions

Important: If institutional communication becomes accessible to retail investors, it must be reclassified and treated as retail communication.

Content Standards (All Communications)

General Standards

All communications must:

Fair and Balanced: Present risks and benefits equally

Not Misleading: No false or exaggerated claims

Sound Basis: Based on accurate information

Clear: Understandable by target audience

Prohibited Content

Guarantees: "Guaranteed 10% return"

Exaggeration: "Best performing fund ever"

Predictions: "Stock will definitely rise"

Misleading Omissions: Stating benefits without risks

Required Disclosures

Depending on content, may need to disclose:

- Past performance is not indicative of future results

- Investment risks

- Conflicts of interest

- Source of information

- Date of publication

Social Media

Social media communications are subject to FINRA rules.

Classification of Social Media

Static content: Retail communication (if public)

Interactive/real-time: May be correspondence

Direct messages: Correspondence

Social Media Considerations

Third-party posts: Firm liable if adopted/entangled

Testimonials: Must comply with SEC rules

Hyperlinks: May adopt linked content

Personal accounts: Subject to firm supervision

Recordkeeping Requirements

Retention Periods

Communications: 3 years (2 years easily accessible)

Complaints: 4 years

FINRA correspondence: Varies by type

What Must Be Retained

- All retail communications

- Samples of correspondence (per firm policy)

- Institutional communications

- Approval records

- Filing confirmations

Supervision and Approval

Principal Responsibilities

Pre-approval: Review before use (retail)

Training: Ensure reps understand rules

Monitoring: Review samples of correspondence

Enforcement: Address violations

Supervisory Procedures

Firms must have written procedures for:

- Reviewing communications before use

- Sampling correspondence for review

- Filing required communications

- Training representatives

- Addressing violations

Key Takeaways

- Three categories: Correspondence, Retail, Institutional

- Correspondence: 25 or fewer retail investors, lightest requirements

- Retail Communications: More than 25 retail investors, filing/approval required

- Institutional: Only to institutions, lighter requirements

- All must be fair, balanced, and not misleading

- Social media is subject to communication rules

- Firms must retain records for 3 years

- Reclassification required if audience changes