Latest / VoraPrep Audio — Professional Licensure & Certification Exam Prep / [Series 7] S7F1: FINRA Rules for Communications with the Public
Transcript
- Hey, welcome to VoraPrep Audio. So, you're newly licensed, you're excited, and you want to start building your client base. You're thinking about posting on social media, maybe making a little market commentary video to share with your network. It seems simple enough. But then that little voice in your head kicks in… what are the rules here? Can I actually get in trouble for a LinkedIn post? The answer is yes, you absolutely can. And that's why we need to talk about FINRA Rule 2210, which covers all communications with the public. This rule is a major focus on the Series 7 because it's all about protecting investors from misleading information. Getting this right isn't just about passing the test; it's about keeping your license. The whole point of this rule is to make sure everything you put out there is fair, balanced, and not misleading. To enforce this, the Financial Industry Regulatory Authority, or FINRA, created a system that's a bit like getting a permission slip. Think about it like this. If you’re just sending a quick note to a few people—say, under 25—it's like a small trip. Your boss, the principal, just needs to be able to supervise it. They can check it before you send it, or they can review it after. It’s flexible. But if you’re planning a big event, something for a large crowd—more than 25 people—you absolutely need that permission slip signed *before* you do anything. That’s the core idea. The size and type of your audience changes the approval rules. FINRA breaks communications down into three main buckets. The first one is Institutional Communication. This is exactly what it sounds like: you're talking only to the big players. We're talking about banks, insurance companies, registered investment companies, maybe a huge pension plan or a person with at least 50 million dollars in assets. Since these guys are considered sophisticated, the rules are a bit more relaxed. Any communication that goes *only* to them just needs to be supervised. A principal can review it before or after you send it out. Simple. But the moment you start talking to regular people, what the rules call retail investors, things change. This is where you have to pay close attention. FINRA splits this world into two. The magic number you have to burn into your brain is 25. Specifically, 25 retail investors within any 30-day period. If you send a written or electronic message to *25 or fewer* retail investors in that 30-day window, that's called Correspondence. This is your classic email to a handful of clients, maybe a direct message on social media, a personal letter. Because the audience is small and contained, the review rule is just like for institutional comms: a principal can review it either before or after it goes out. Now, for the big one. If you communicate with *more than 25* retail investors in a 30-day period, that is Retail Communication. This category is broad. It covers your traditional ads in newspapers or on TV, but more importantly for today, it covers your firm's website, a marketing brochure, and your social media posts that are available to the general public. Anything meant for a mass audience. And because the potential for widespread harm is greater, the rule is strict: Retail Communication requires principal approval *prior to first use*. You cannot post it, mail it, or air it until a qualified principal has signed off on it. No exceptions. And it doesn't matter what you call it, all three types—Institutional, Correspondence, and Retail—have the exact same recordkeeping rule. You have to keep a copy of it for a minimum of three years, and for the most recent two of those years, it needs to be in a place where you can pull it up easily. Three years total, two years readily accessible. Don't let the exam trick you into thinking there are different retention periods. Now, beyond the categories, there are some ground rules for the *content* of what you're saying. Everything has to be fair and balanced. You can't just hype up the potential rewards of an investment without also discussing the risks. You can't leave out important facts that would make your statements misleading. No exaggerated claims, no promising the moon. What about testimonials? You see them all the time. They are allowed, but with strings attached. You have to be clear if the person giving the testimonial was paid. You have to disclose any major conflicts of interest. And your firm has to be able to prove that what the testimonial says is actually true. Social media is a huge area for testing. Think of it this way: static content, like the bio on your professional profile or a pre-written post your firm wants you to share, is generally treated as Retail Communication. It's like a billboard. It needs pre-approval. But interactive content, like a real-time comment you leave on someone else's post, might be treated as Correspondence, which can be reviewed after the fact. Either way, if you’re using a personal social media account for business, it falls under your firm's supervision and all these rules apply. Okay, let's make this real. Imagine a test question. A registered rep drafts an email about a new stock idea. She sends it to 15 of her existing retail clients and 5 potential retail clients, all in the same week. What kind of communication is this, and what's the approval rule? First, let's analyze it. The audience is all retail investors. How many? 15 plus 5 equals 20. That's happening within a 30-day period. Since 20 is less than or equal to 25, we know it falls into the Correspondence category. And what's the rule for correspondence? Principal review can happen before or after use. See how that works? Let’s try another one. Your firm is launching a new mutual fund. They create a beautiful brochure and mail it to 500 people. They also post a digital version of that brochure on the public-facing part of their website. What are we looking at now? Well, the audience is way more than 25 retail investors. And it's being made available to the general public online. That is textbook Retail Communication. Which means it absolutely requires principal approval *prior to first use*. Before a single brochure gets mailed, before that webpage goes live, a principal needs to have reviewed and approved it. The main trap on the exam is mixing up the approval timing. They'll give you a scenario that is clearly Retail Communication and then offer "post-use review" as an answer choice. You have to be sharp. More than 25 retail investors means pre-approval. Always. This is exactly the kind of distinction we break down at VoraPrep. If you feel like you need more practice on this, VoraPrep is a full exam-prep app. It has lessons, thousands of practice questions, and even an AI tutor to help you work through these concepts in one place. You can get started for free at Vora Prep dot com. So, let's recap the big takeaways. Rule 2210 is all about fair and balanced communication. The most important thing to figure out is your audience. Is it just institutional investors? Or is it retail? If it's retail, the magic number is 25. Twenty-five or fewer is correspondence, review can be before or after. More than 25 is retail communication, and that requires principal approval *before* first use. And no matter what, you're keeping records for three years, with the last two easily accessible. Get that framework down, and you’ll be in great shape to handle any communication questions they throw at you. You've got this. Keep up the great work.