Unit 27 - Communications with the Public

Basic Rules under Telephone Protection Act (TCPA) of 1991

1) Ensure anyone making cold calls informs prospects of their name, the company's name, and the company's telephone number or address 2) Ensure that solicitation occurs ONLY between 8am and 9pm based on the PROSPECTS time 3) No calls to numbers on the do-not call list (Refreshed/updated every 30 days; names stay on list forever until customer decides to remove their name)

Exemptions from TCPA

1) Made to parties with whom the caller has an established business relationship or from whom the caller has prior express permission/invitation 2) Made of behalf of a tax-exempt nonprofit organization 3) Not made for a commercial purpose 4) Made for legitimate debt collection purposes

The TCPA requires that businesses that solicit by phone maintain a do-not-call registry that must be republished every A) 30 days. B) 3 months. C) quarter. D) year.

A) 30 days. Explanation Do-not-call registries are republished every 30 days. Numbers do not age out of the do-not-call list. If a number is on the list, do not call.

Which of the following scenarios would not violate general standards regarding member firm communications? A) A recruitment advertisement promises substantial training to be delivered to incoming employees. B) A registered representative with a master's degree in astronomy notes that this is a benefit when choosing securities in the aerospace industry sector. C) A customer is shown a brochure outlining how the use of stop orders completely prevents a customer from losing any money. D) A graph exclusively showing penny stocks that have advanced in price more than 75% during each of the past three years is distributed to retail customers.

A) A recruitment advertisement promises substantial training to be delivered to incoming employees. Explanation Financial Industry Regulatory Authority (FINRA) holds broker-dealers to certain general standards regarding all member firm communications, including recruitment advertising. Promises of training in recruitment pieces would not be considered exaggerated or misleading. None of the other scenarios would be acceptable and all would be deemed misleading, unbalanced regarding risk, or simply untrue.

Which broker-dealers or investment advisers are obligated to maintain a business continuity plan? A) All federally covered broker-dealers and investment advisers B) State registered investment advisers only C) Federally registered investment advisers only D) Broker-dealers only

A) All federally covered broker-dealers and investment advisers Explanation All federally covered securities firms, both B-Ds and IAs, must have a business continuity plan (BCP).

There are rules regarding customer statements. All of the following statements reflect those rules except A) activity limited to only stock splits or stock dividends do not require monthly statements be sent. B) customer statements must be sent no less frequently than quarterly. C) customers must be alerted to report any inaccuracies or discrepancies promptly. D) customer statements containing penny stocks must be sent monthly, even if no activity occurred in the account.

A) activity limited to only stock splits or stock dividends do not require monthly statements be sent. Explanation Any activity in an account such as purchases and sales, dividends and interest, and stock splits and stock dividends will trigger the requirement to send a monthly statement. If there is no activity, statements are only required quarterly, unless the account contains penny stocks in which case a statement is required for any month penny stocks are in the account. All statements sent require notice that inaccurate information is reported promptly.

Regulation S-P requires that financial institutions provide information to customers and consumers concerning A) all of these. B) the categories of nonpublic personal information that a broker-dealer, fund, or registered investment adviser may collect and disclose. C) a consumer's right to opt out of the disclosure of nonpublic personal information to nonaffiliated third parties. D) their policies on the protection of nonpublic personal information.

A) all of these.

A broker-dealer's business continuity plan (BCP) should be reviewed A) annually by a principal of the firm. B) semiannually by a principal of the firm. C) biannually by a registered representative designated to do so. D) on an as needed basis or if prompted by Financial Industry Regulatory Authority (FINRA) to do so.

A) annually by a principal of the firm. Explanation Business continuity plans (BCPs) are required to be reviewed annually by a principal of the firm.

In accordance with the terms of the Telephone Consumer Protection Act of 1991 (TCPA), all of the following statements are true except A) cold calls may be made between 8:00 am and 9:00 pm in the time zone from which the representative is making the call. B) calls made on behalf of tax-exempt nonprofit organizations are exempt from the act. C) the firm must maintain a do-not-call list documenting all those who have asked to be placed on it. D) calls made to parties with whom the caller has an established business relationship are exempt from the act.

A) cold calls may be made between 8:00 am and 9:00 pm in the time zone from which the representative is making the call. Explanation Any solicitation made must occur between 8:00 am and 9:00 pm in the recipient's time zone (not the callers). Firms must maintain a do-not-call list, and the act exempts calls made on behalf of tax-exempt nonprofit organizations and calls made to parties with whom the caller has an established business relationship.

Caleb Wilson receives an email from his client, Shelby Bogdin, requesting the year-to-date performance on several of her mutual funds. Wilson immediately looks up the performance and emails her a response. This type of communication would be classified as under FINRA rules as A) correspondence. B) respondence. C) retail communication. D) prohibited.

A) correspondence. Explanation FINRA has three classifications of communication with the public. Correspondence is communication to 25 or fewer retail investors in a 30-day period. Retail communications is to more than 25 retail investors in a 30-day period. Institutional communication is going to banks, insurance companies, mutual funds, et cetera. Responding to an email is not prohibited as long as the rep follows his company policies. Respondence is a word, however, it has nothing to do with FINRA communication rules.

Jackson Raleigh, a registered representative in Memphis, TN, has a client who is a pension fund manager for the Tiger Pension Fund. Raleigh creates several flyers of informational literature about the funds available in the Tiger Pension Fund and emails them to the fund manager so that the fund manager can prints copies of the flyers and make them available to the participants in the pension fund. FINRA would classify these flyers as A) retail communications. B) sales literature. C) institutional communications. D) correspondence.

A) retail communications. Explanation FINRA has three classifications of communication with the public. Correspondence is communication to 25 or fewer retail investors in a 30-day period. Retail communications is to more than 25 retail investors in a 30-day period. Institutional communication is going to banks, insurance companies, mutual funds, et cetera. Even though the material was sent to the pension fund, which could be considered institutional communications, because the material was being forwarded to retail investors, it is considered retail communication.

Lilly Bogdin, a registered representative in the Norristown, PA, branch, creates a flyer for an upcoming seminar that she emails to all of her 150 clients. FINRA would classify this type of communications with the public as A) retail communications. B) correspondence. C) an announcement. D) advertising.

A) retail communications. Explanation Retail communication is sent to more than 25 retail investors in a 30-day period. Announcements and advertising are not classifications of communications with the public. Correspondence is communication directed to 25 or fewer retail investors in a 30-day period.

There are two types of do not call list. What are they and how long do names stay on the list? A) Broker-dealer list and name remain on list for five years, and national list and names remain on the list for 10 years B) Broker-dealer list and a national list; names remain on list until removed by customer C) National list and names remain on list for five years, and broker-dealer list and names remain on list for 10 years D) Broker-dealer list and names remain until removed by the customer, and national list and names remain for five years

B) Broker-dealer list and a national list; names remain on list until removed by customer Explanation For both the broker-dealer list and the national Do-Not-Call list, names are not to be called unless the customers request that their name be removed from the list. There was a prior law that only required the broker-dealer list to hold names for five years, but that has changed and names remain on the list indefinitely.

A customer has requested that your broker-dealer hold mail for them while they are traveling. Which of the following is true? A) While away the customer need not be made aware of other ways to monitor activity in the account. B) Firms may choose or choose not to hold customer mail when requested to. C) The firm is not responsible for mail while being held. D) The request can be made verbally and need not be in writing.

B) Firms may choose or choose not to hold customer mail when requested to. Explanation While holding mail is a courtesy that firms are permitted to extend to customers, the rule does not require them to. The request must be in writing, and the customer must be made aware of any other methods to keep track of account activity. And lastly, the firm must take actions reasonably designed to ensure that a customer's mail is not tampered with or used in a manner that would violate Financial Industry Regulatory Authority (FINRA) rules or federal securities laws.

A client phones his registered representative in September and informs the representative that he will be studying abroad in Europe for the remainder of the year. The client wants the firm to hold his mail. What action should the representative take? A) The representative should temporarily change the client's address to a secure PO box to prevent the theft of his mail. B) The representative must instruct the client that the request must be made in writing. C) The representative should send duplicates to Paris since the SEC customer protection rules state mail cannot be held. D) The representative should have all mail forwarded directly to the branch to protect against identity theft.

B) The representative must instruct the client that the request must be made in writing. Explanation FINRA rules require that all requests to hold mail must be made through written instruction from the customer. The instruction must include the period during which the mail hold is requested. If the requested period included in the instructions is longer than three consecutive months, then the customer's instructions must include an acceptable reason for the request (e.g., safety or security concerns).

All FINRA firms must have business continuity plans. Those plans must include all of the following except A) prompt customer access to funds and securities if the firm is unable to continue business. B) a designated principal and member of senior management to conduct a quarterly review and update of the plan. C) data backup and recovery capability. D) the name of two emergency contact persons who are principals and members of senior management.

B) a designated principal and member of senior management to conduct a quarterly review and update of the plan. Explanation The plan must be reviewed and updated annually, not quarterly.

For institutional communication the rule allows for either preapproval or review. However, if the firm allows the communication to go out before approval by a principal then A) the associate must have at least 10 years industry experience. B) the associate must have training on these communications. C) the principal must preapprove the topic of the communication. D) the review must occur within 10 minutes of transmission.

B) the associate must have training on these communications. Explanation The rule allows the firm to require pre-use approval or allow for postuse review. If the firm allows postuse review then the associates must receive education and training on communications with institutions.

All of the following are provisions of Regulation S-P except A) the firm has an obligation to protect the privacy of customer information. B) the firm must give the customer the opportunity to opt-out semiannually. C) the firm must provide the customer with a privacy notice initially when opening the account and annually thereafter. D) the firm must give the customer the opportunity to opt-out at the opening of the account.

B) the firm must give the customer the opportunity to opt-out semiannually. Explanation The firm must give the opportunity to opt-out annually, not semiannually.

Financial Industry Regulatory Authority (FINRA) and the other self-regulatory organization (SRO)s place extreme importance on knowing your customer. That involves knowing both financial and non- financial considerations. All of the following are nonfinancial considerations except A) the client's age. B) the salary paid to the client by her employer. C) the number of children the client has. D) the client's attitude toward risk.

B) the salary paid to the client by her employer. Explanation Nonfinancial considerations are those for which there is no monetary relationship. Clearly, the client's salary is one of the most important of the financial considerations.

Holding customer mail is consistent with your broker-dealer's in-house rules. Considering this, if requested to do so, the broker-dealer must A) have the customer request anew after six months and then each three months thereafter. B) verify at reasonable intervals that the customer's instructions still apply. C) request approval from the Securities Exchange Commission (SEC). D) await approval from Financial Industry Regulatory Authority (FINRA).

B) verify at reasonable intervals that the customer's instructions still apply. Explanation If the broker-dealer chooses to hold customer mail, once requested to do so in writing the broker-dealer must verify at reasonable intervals that the customer's instructions still apply. The rule regarding holding customer mail does not require the broker-dealer to request or get SEC or FINRA approval and there is no requirement that the customer make additional requests to continue having the broker-dealer hold mail.

Test Q1 FINRA rule 2210 on communications with the public would apply for all of the following except A) A text message B) A flyer sent to 20 prospects C) A voicemail left for a customer D) A website

C) A voicemail left for a customer Explanation Rule 2210 applies to written communication. Written communication does not require paper, just words made up from letters. If they can read it, it is considered written communication.

Regulation S-P defines consumers and customers correctly in which of these statements? I A customer has an ongoing relationship with the company. II A consumer performs a onetime transaction with the company. III A consumer has an ongoing relationship with the company. IV A customer performs a onetime transaction with the company. A) III and IV B) I and III C) I and II D) II and IV Explanation Customers have an ongoing relationship and should receive an annual Regulation S-P notice. Consumers are entitled to receive the notice once.

C) I and II Explanation Customers have an ongoing relationship and should receive an annual Regulation S-P notice. Consumers are entitled to receive the notice once.

Communicating the information in a firm's BCP to customers occurs at all of the following times except A) at account opening. B) when requested. C) annually. D) ongoing on the firm's website.

C) annually. Explanation There is no annual communication requirement for a business continuity plan (BCP).

The Telephone Consumer Protection Act of 1991 exempts all of these entities except A) survey takers. B) not-for-profit companies. C) booking services for commercial enterprises. D) debt collectors.

C) booking services for commercial enterprises. Explanation If the cold caller is looking to book appointments for a commercial entity, it must abide by the rules. Legitimate efforts made to collect a debt, those taking polling surveys, and charities are exempt from these rules.

All of these are true regarding correspondence except correspondence A) must be to 25 or fewer retail customers or prospects within 30 days. B) must be in good faith. C) must be filed with FINRA within 10 business days. D) may be reviewed after use (postreview).

C) must be filed with FINRA within 10 business days. Explanation Correspondence may be either pre-use approval or postuse review; it is the firm's decision. All communication with the public must be in good faith. Correspondence may go to 25 or fewer persons within 30 days. Unlike retail communication, correspondence does not need to be filed with FINRA.

An institutional customer has requested that you provide an article that they can use in their quarterly retail client newsletter. Rule 2210 states that you must A) have a principal review the communication and a copy must be filed with FINRA. B) have a principal review the communication but no filing is required. C) obtain preapproval from a principal and file a copy with FINRA. D) obtain preapproval from a principal, but no filing is required.

C) obtain preapproval from a principal and file a copy with FINRA. Explanation Even though this is going to an institutional customer, you have good reason to believe it will be sent to retail customers; as such, this must be treated as retail communication.

All of the following are classifications of communications with the public except A) correspondence. B) retail communications. C) sales literature. D) institutional communications.

C) sales literature. Explanation FINRA has three classifications of communication with the public. Correspondence is communication to 25 or fewer retail investors in a 30-day period. Retail communications is to more than 25 retail investors in a 30-day period. Institutional communication is going to banks, insurance companies, mutual funds, et cetera.

All member firm communications are held to certain standards by Financial Industry Regulatory Authority (FINRA). All of the following characterize those standards except A) professional designations and degrees may be noted but not used to imply expertise in areas where none exists. B) recruitment advertising must be fair and balanced in nature when expressing potential income. C) the nature of the audience (age, investment experience) need not be a consideration at an open seminar. D) charts and graphs must be balanced in showing both opportunities for gains and possible losses.

C) the nature of the audience (age, investment experience) need not be a consideration at an open seminar. Explanation FINRA mandates that members must consider the nature of the audience to which the communication will be directed and should provide details and explanations appropriate to the audience.

During a discussion with a customer about a potential investment opportunity involving securities, standing alone, all of the following would likely be permissible except A) the registered representative pessimistically implies that an investment has a good chance of losing money, as well as gaining, because the product might not have a market. B) the registered representative points out, correctly, that the maximum possible loss on this particular investment is probably smaller than the maximum possible gain. C) the registered representative points out only that a tech firm has a brilliant product idea and the CEO has advanced degrees in science. D) the registered representative shows the customer a brochure with a chart showing best and worst case scenarios for product development over the next year.

C) the registered representative points out only that a tech firm has a brilliant product idea and the CEO has advanced degrees in science. Explanation The CEO may have advanced degrees, and the product idea may be brilliant, but the registered representative has failed to mention that these two things do not guarantee success nor the relevancy of the degree to the product or idea being discussed.

The TCPA only restricts solicitations that are delivered via A) facsimile. B) voice telephone calls. C) the telephone lines. D) email.

C) the telephone lines. Explanation The Telephone Consumer Protection Act of 1991 restricts any solicitation that uses a telephone line.

Solicitations may only occur between A) 8:00 am and 9:00 pm of the caller's time zone. B) 9:00 am and 8:00 pm of the customer's time zone. C) 9:00 am and 8:00 pm of the caller's time zone. D) 8:00 am and 9:00 pm of the customer's time zone.

D) 8:00 am and 9:00 pm of the customer's time zone. Explanation These are the times established by the Telephone Consumer Protection Act.

Of the following, which would not be considered institutional communications with the public? A) A communication with an individual designated to act on behalf of your institutional customer B) A letter to another broker-dealer regarding potential business together C) A letter to a municipality offering your firm's services as an underwriter D) An internal memo promoting a new product that will be offered to your firm's institutional customers only

D) An internal memo promoting a new product that will be offered to your firm's institutional customers only Explanation Institutional communications specifically exclude internal communications such as memos. Communications with another member firm, a government entity, such as a municipality or with someone designated to act on behalf of one of your firm's institutional customers, would all fall within the definition of institutional communications.

An individual is solicited with a cold call made by a registered representative. He tells the representative he is not interested in this investment or in making any future investments. Which of the following actions is required by the Telephone Consumer Protection Act of 1991 (TCPA)? A) The representative may send a fax regarding future recommendations. B) The representative may never make cold calls again. C) A principal of the firm may call the prospect the next time. D) No calls may be made to the prospect by anyone at the firm.

D) No calls may be made to the prospect by anyone at the firm. Explanation First the prospect's name must be placed on the firm's do-not-call list, and then no one at the firm may call.

The regulation enacted by the Securities and Exchange Commission (SEC) to protect the privacy of customer information is known as A) the trust indenture act. B) Regulation D. C) the Bank Secrecy Act. D) Regulation S-P.

D) Regulation S-P. Explanation Privacy Requirements are mandated in Regulation S-P enacted by the SEC to protect the privacy of customer information. In particular, the regulation deals with nonpublic personal information

All of the following would be requirements of the Telephone Consumer Protection Act of 1991 except A) record the names and numbers of those who request to be put on the National Do Not Call Registry. B) train representative on use of the National Do Not Call Registry. C) have written policies and procedures for the National Do Not Call Registry. D) contact each customer and ask if they wish to be put on the National Do Not Call Registry.

D) contact each customer and ask if they wish to be put on the National Do Not Call Registry. Explanation There is no requirement to call customers in advance to ask if they want to be on the National Do Not Call Registry; the other options are required.

Under the Telephone Consumer Protection Act of 1991 (TCPA), administered by the Federal Communications Commission (FCC), a telephone solicitation is defined as a telephone call A) made only to those who have expressed an interest in purchasing the products offered by broker-dealers. B) initiated for the purpose of encouraging the purchase of investment products only such as securities. C) made to anyone within the same state as the originator of the call. D) initiated for the purpose of encouraging the purchase of, or investment in property, goods, or services.

D) initiated for the purpose of encouraging the purchase of, or investment in property, goods, or services. Explanation Administered by the FCC, the TCPA defines a telephone solicitation as any telephone call initiated for the purpose of encouraging the purchase of, or investment in property, goods, or services. This would include products and services offered in the securities industry by broker-dealers.

The Telephone Consumer Protection Act mandates that unsolicited sales calls must occur A) no earlier than 9:00 am and no later than 9:00 pm recipient's time. B) no earlier than 9:00 am and no later than 8:00 pm recipient's time. C) no earlier than 8:00 am and no later than 9:00 pm solicitor's time. D) no earlier than 8:00 am and no later than 9:00 pm recipient's time.

D) no earlier than 8:00 am and no later than 9:00 pm recipient's time. Explanation The rule is that calls may only occur between 8:00 am and 9:00 am prospect's time. Though 9:00 am to 8:00 am and 9:00 am to 9:00 am fits within the time allowed, that is not the rule.

Broker/dealers who reserve the right to disclose nonpublic private information about their customers to unaffiliated third parties must A) provide reasonable means for customers to opt out of such disclosures only at the time of the account is opened. B) provide notice to customers each time a transaction occurs within the account and provide reasonable means for customers to opt out of such disclosures. C) require that customers wishing to opt out send a written request with signature witnessed by a notary. D) provide notice to customers at the time of the account opening and provide reasonable means for customers to opt out of such disclosures.

D) provide notice to customers at the time of the account opening and provide reasonable means for customers to opt out of such disclosures. Explanation Regulation S-P requires that if a broker/dealer reserves the right to disclose nonpublic personal information to third nonaffiliated parties, it must notify the customer at the time of the account opening and annually thereafter. Means to opt out of the disclosures must be reasonable and easy. Requiring a written request to opt out would not be considered reasonable means under the regulation.

Anyone making call cold calls for the firm must disclose all of the following information except A) the firm's name. B) the firm's address or phone number. C) the rep's name. D) the rep's address or phone number.

D) the rep's address or phone number. Explanation There is no requirement to disclose the rep's address or phone number. The others are required by the Telephone Consumer Protection Act.

Calls made regarding of all of the following under the Telephone Consumer Protection Act of 1991 (TCPA) are exempt except A) those on behalf of a tax-exempt nonprofit organization. B) those made for legitimate debt collection purposes. C) those made to parties with whom the caller has an established business relationship. D) those made that are unsolicited for the purpose of prospecting new clients.

D) those made that are unsolicited for the purpose of prospecting new clients. Explanation The TCPA exempts calls made to parties with whom the caller has an established business relationship or from whom the caller has prior express permission or invitation to call, call made on behalf of a tax-exempt nonprofit organizations or not made for a commercial purpose and those made for legitimate debt collection purposes. Calls made unsolicited for the purpose of prospecting new clients or to solicit sales of securities products or services of broker-dealers are covered by the act.

Regulation SP

Regulation enacted by the SEC to Protect the privacy of customer information, particularly nonpublic personal information (NPI). Your firm must provide a privacy notice describing its privacy policies to customers whenever a new account is opened and annually thereafter. The notice must provide customers a reasonable means to opt out of the disclosure of the customer's nonpublic personal information to unaffiliated third parties.