Don't Forget Advertising Compliance

Although broker-dealers and investment advisors may have their own specific guidelines when it comes to advertising (you should refer to your firm's policies and procedures manual for the specifics), here are some things to keep in mind when crafting advertising and marketing material.

A registered representative must adhere to many rules and standards when communicating with the public. At the highest level is the Securities Act of 1933, which contains rules and regulations for specific products, including the required prospectus disclosures. FINRA expands on, and enforces, the requirements from the act as well as other guidance from the SEC.

FINRA rules are specific as to what constitutes an advertisement or sales literature and what material must be filed and when. FINRA also provides guidance for certain products, such as mutual funds, variable products, direct participation programs, and options. When discussing municipal securities, including individual bonds, bond mutual funds, and 529 plans, you need to adhere to the rules issued by the Municipal Securities Rulemaking Board. Your firm issues its own policies and procedures for communicating with the public encompassing all of these requirements and to address other concerns, such as risk, the firm may have.

In the broadest terms, communication with the public cannot be promissory and needs to disclose all material facts. You need to make sure that you don't write anything that could be considered fraudulent, deceptive, misleading, or manipulative. This is where advertising, and advertising review, becomes subjective. You, your firm, FINRA, and possibly a state regulator may view the same material differently.

Take the word "best," for example. Typically, this word would be considered promissory, and possibly misleading, deceptive, or manipulative. Can you really know what is "best" for a particular client? You might consider substituting another word for "best," such as "appropriate."

Or how about "safe" or "safety"? Typically, the only products that can be referred to as "safe" are U.S. Treasury securities, and then only to the extent that they are guaranteed by the federal government as to the timely payment of principal and interest. If you want to discuss the relative "safety" of a specific investment or product, you might instead mention that it may be popular with investors seeking safety or low risk.

Even if a communication does not mention a product that requires filing with FINRA for review, if you have any concerns that the content could be misconstrued by a regulator, you could request that your firm file it with FINRA anyway. It is better to receive a FINRA review letter with comments, if any, so that they can be addressed before you send the material. The ideal situation is to receive a FINRA letter indicating that your material appears consistent with applicable standards. While this won't prevent an inquiry, it certainly could help in your response, and — if it comes to it — could mitigate or possibly even eliminate any potential sanctions.

There are many rules governing advertising compliance, and many of them are subjective and frequently revised, which makes it critical to get approval from your firm's registered principal for all communications with the public. If you purchase advertising or marketing materials, always insist on a FINRA letter that indicates they appear consistent with applicable standards.