Approvals, Categories, and Compliance Standards

Every communication distributed by a broker-dealer to the public must adhere to foundational standards of fair dealing and good faith. Regulatory guidelines mandate that all promotional materials, written messages, and electronic broadcasts remain fair, balanced, and completely truthful. Firm compliance officers, known as principals, carry the ultimate responsibility for supervising these materials to ensure that no investor is misled.

Universal Standards for All Public Communications

Regardless of the medium used, every piece of public communication must provide a sound basis for evaluating the facts regarding any security, industry, or financial service. Firms are strictly prohibited from omitting material facts if that omission would make the statement misleading within the context presented.

False, exaggerated, or unwarranted claims are prohibited across all formats. Key disclosures cannot be hidden inside footnotes or fine print legends if doing so hinders an investor's ability to understand the information. Furthermore, communications must never promise specific future performance or imply that past gains will repeat. While hypothetical illustrations of mathematical principles are permitted, they must never project or predict the actual performance of an investment strategy.

When a public communication includes a testimonial regarding technical investing matters, the individual giving the statement must possess the genuine knowledge and expertise required to form a valid opinion. Above all, every presentation of potential investment benefits must be clearly balanced by an explanation of the corresponding risks.

The Three Main Categories of Communication

FINRA divides communications with the public into three distinct categories based on audience size and investor type. Understanding these categories determines whether a piece of material requires preapproval before distribution.

• Correspondence: This includes any written or electronic communication distributed to 25 or fewer retail investors within any 30 calendar day period. Correspondence does not require preapproval by a compliance principal before it goes out. Instead, the firm must monitor correspondence through supervisory procedures, using automated filters and red flag keyword detection systems to audit outgoing messages.
• Retail Communications: This category includes any written or electronic communication distributed to more than 25 retail investors within a 30 calendar day period. Retail communications encompass website content, form letters, group emails, chat rooms, webinars, print advertisements, radio spots, and television broadcasts. Because of the broad reach, retail communications require formal principal approval prior to first use or filing with regulators.
• Institutional Communications: This covers materials distributed solely to institutional investors. Firms are not required to preapprove every institutional communication if they establish appropriate written supervisory procedures. These procedures must include staff training, thorough documentation, and regular surveillance to ensure full regulatory compliance.

Definitions, Prefiling Requirements, and Spot Checks

A retail investor is defined as any person who does not meet the definition of an institutional investor, regardless of whether that individual holds an active account with the broker-dealer. A retail communication is any communication made available to more than 25 retail investors in any 30 calendar day period.

When filing retail communications with FINRA, the submission must include the actual or anticipated date of first use, the name and title of the approving principal, and the exact date approval was granted.

During their first year of operation, new member firms face heightened scrutiny and must prefile all retail communications with FINRA at least 10 business days before first use. This prefiling requirement covers the firm website, media ads, and mass mailings.

In addition to regular filing requirements, FINRA reserves the right to conduct spot check procedures. Upon receiving a written request from the Advertising Regulation Department, the firm must submit the requested communication records within the timeframe specified by regulators.

Intermediary Rules and Video Submissions

Broker-dealers often act as intermediaries selling investment products created by outside entities, such as mutual funds or variable annuities. If the principal distributor of the fund has already filed the sales literature with FINRA, the selling intermediary does not need to reapprove or refile those materials, provided they are distributed without any significant alterations.

For firms using video advertising, specific filing steps apply. If a firm prefiles a draft storyboard or script of a video advertisement, it must also submit the final filmed version within 10 business days of its first public broadcast or use.

Maintaining clear supervisory logs, enforcing proper category thresholds, and prioritizing balanced risk disclosures ensures that firm communications remain compliant while building long-term investor trust.