Ch 19 Checkpoint
A FINRA member firm sends a promotional piece to 23 individuals over a three-day period. Ten of these individuals are current customers of the firm. The other 13 are prospects whose names came from a commercially available mailing list service. Under the FINRA rule on communications with the public, this promotional piece would be considered A) correspondence to the existing customers, and retail communication to the prospects. B) retail communication. C) correspondence. D) direct mail.
C) correspondence. Correspondence is defined as any written (including electronic) communication that is distributed or made available to 25 or fewer retail investors within any 30 calendar-day period. If it goes to more than 25, it is retail communication. The fact that some of the recipients are customers and others are prospects is irrelevant. It is simply the number of people during the 30-day period.
Under the rules on communication with the public, review of which of the following by a principal may take place either before or after distribution? A) Advertising in a newspaper B) Independently prepared reprints C) Seminar scripts D) Correspondence to 25 or fewer retail investors within any 30-calendar-day period
D) Correspondence to 25 or fewer retail investors within any 30-calendar-day period
A registered representative reproduced a research report prepared by an independent research analyst on his broker-dealer's letterhead, with no mention of the party who prepared the report. If this literature is forwarded to a select group of clients only, the registered representative's action is
NOT ALLOWED A broker-dealer is prohibited from presenting to a client research reports, analysis, or recommendations prepared by other persons or firms without disclosing that they were prepared by a third party.
Mutual fund performance statistics must show results for
one, five, and 10 years, or for the life of the fund—whichever is shorter.
A registered representative may never A) act as a sales agent. B) approve advertising. C) act as a broker. D) act as a buyer's agent.
approve advertising
The three categories of communications with the public are
correspondence, institutional communications, and retail communications.
Communications material that is intended for use with institutional customers only need be supervised and reviewed by a
principal of the member firm. Alternatively, if the member's procedures do not require review of institutional communications, they must include a provision for the education and training of associated persons so that they will understand the firm's requirements.
The FINRA rule on communications would consider communications that are posted on an online interactive electronic forum (i.e., a chat room) to be A) institutional communications. B) correspondence. C) retail communications. D) a public appearance.
retail communication
Filing with FINRA within 10 business days of first use is required for all of the following except A) retail communications that promote or recommend a specific real estate investment trust (REIT). B) retail communications concerning public direct participation programs (DPPs), C) retail communications that promote or recommend a specific registered investment company or family of registered investment companies including exchange-traded funds (ETFs). D) retail communications concerning collateralized mortgage obligations (CMOs) registered under the Securities Act,
retail communications that promote or recommend a specific real estate investment trust (REIT).
For a member that has not previously filed retail communications with FINRA, prefiling is required for the
1-year period following the first filing.
FINRA Rule 2210 deals with communications with the public. The rule classifies these communications into three different categories. Which of the following is not one of those categories? A) Advertisements B) Retail communications C) Institutional communications D) Correspondence
A) Advertisements finra rewrote the old rule, it removed the term advertising and sales literature
A member firm must prefile its retail communications if I) the member has not previously filed with FINRA. II) it appertains to standardized options prior to the distribution of the ODD. III) the advertising relates to single stock futures. IV) under an order from FINRA to prefile.
A) I, II, III, and IV
Lorne Walters is a registered representative with Pecuniary Profits Securities, PPS, a FINRA member firm. Walters has decided to conduct virtual meetings using a system called Xoom. Because he has never used the system before, Walters decides to make a trial run of his securities presentation to six family members who are PPS customers. All of these family members are accredited investors. Which of the following choices best describes this situation? A) Prior approval of PPS may be required, but it is not mandated by FINRA for this public appearance. B) The virtual meeting may not be archived for later viewing. C) Walters may not recommend securities during the presentation, unless a principal of PPS provides prior approval. D) This constitutes an institutional communication to accredited investors and does not require preapproval by a principal of the firm.
A) Prior approval of PPS may be required, but it is not mandated by FINRA for this public appearance. virtual meeting is defined as a public appearance
All of the following are unlawful except A) giving written notification to a customer that the broker-dealer is acting as a principal for the trade. B) selling new issues on margin. C) omitting a statement of a material fact. D) representing that the SEC has approved of a broker-dealer or a security being sold.
A) giving written notification to a customer that the broker-dealer is acting as a principal for the trade.
The ABC Insurance Company is advertising its variable annuity product as "ABC Lifetime Income—income generated from mutual fund returns." This advertisement is A) prohibited because it implies returns from mutual funds. B) prohibited because it doesn't reference an annuity. C) permitted as long as there's no guarantee. D) permitted.
A) prohibited because it implies returns from mutual funds.
All of the following communications are exempt from filing with FINRA except A) retail communications that make a financial or investment recommendation. B) communications that refer to an investment solely as part of a listing of products offered by the member. C) retail communications previously filed with FINRA. D) prospectuses and preliminary prospectuses.
A) retail communications that make a financial or investment recommendation.
Popular Investment Securities, a FINRA member firm, produces short videos describing the general characteristics of different types of securities. Periodically, an interstitial appears during the video. Under FINRA's rules on communications with the public, A) the appearance of the interstitial defines the video as retail communication requiring filing. B) as long as the presentation is strictly generic, filing with FINRA is not required. C) interstitials may not be used in public communication without the consent of the viewer. D) video presentations of any kind must be filed with FINRA within 10 days after first use.
A) the appearance of the interstitial defines the video as retail communication requiring filing. Probably the best example of an interstitial is the pop-up ad. Sometimes it is a full-page ad causing the viewer to see the advertisement before being able to see the rest of the content.
If a prospectus for a variable life insurance product contains hypothetical projections of returns, A) the maximum return permitted is 12%, and there must be an illustration showing a 0% return as well. B) they may be used to demonstrate why this is an investment product. C) the issuer could be liable for civil action. D) they must reflect returns for the past 1-, 5-, and 10-year periods.
A) the maximum return permitted is 12%, and there must be an illustration showing a 0% return as well. Variable life insurance must not be sold as an investment product. It must always be emphasized that the policy should be purchased to meet an insurance need.
A generic ad for an investment company placed by a broker-dealer would contain A) the name of the broker-dealer, but not the name of the investment company. B) neither the name of the investment company nor the name of the broker-dealer. C) the name of the investment company, but not the name of the broker-dealer. D) both the name of the investment company and the name of the broker-dealer.
A) the name of the broker-dealer, but not the name of the investment company. specific fund or investment co not mentioned in generic advertising
A principal of a member firm with the responsibility of supervising registered representatives would perform all of the following duties except A) write all sales material and advertising copy intended to be used as a means of communicating with the public. B) review a registered representative's correspondence with the firm's customers in accordance with the firm's written procedures. C) approve each securities transaction, whether for retail or institutional customers. D) approve the opening of all new accounts, whether for retail or institutional customers.
A) write all sales material and advertising copy intended to be used as a means of communicating with the public.
Which of the following statements is an accurate interpretation of FINRA Conduct Rules governing the use of retail communications? A) All retail communications must be filed with FINRA before first use. B) Institutional communications need not be preapproved by a principal. C) All communications with individual clients are considered retail communications. D) Sales and product promotion materials distributed to registered representatives and other employees are retail communications and must be submitted for FINRA review, even though such materials are not intended for public distribution.
B) Institutional communications need not be preapproved by a principal.
Under Options Clearing Corporation (OCC) rules regarding options communications with the public, if an educational piece making no projected performance figures or recommendations is distributed to customers, it A) can only be distributed to retail customers. B) need not be preceded by an options disclosure document (ODD). C) need not be approved by a registered options principal (ROP). D) can only be distributed to institutional customers.
B) need not be preceded by an options disclosure document (ODD).
All the following retail communications must be prefiled with FINRA except A) retail communications concerning options without previously providing an ODD. B) retail communications concerning public DPPs. C) retail communications concerning investment companies with custom ratings. D) retail communications concerning the member firm's opening for business last month.
B) retail communications concerning public DPPs.
All of the following are excluded from the FINRA filing requirement for communications with the public except A) retail communications posted on an interactive forum online. B) retail communications posted online that require a login to access. C) correspondence. D) retail communications that only identify the member firm.
B) retail communications posted online that require a login to access.
If another member broker-dealer has already received clearance from FINRA for a retail communication, filing the piece with FINRA so that your broker-dealer can now use it A) must be done 10 days before your broker-dealer can use it, even if unaltered. B) must be done within three days after use by your broker-dealer, even if unaltered. C) is not necessary if unaltered and used as originally intended. D) must be done before publication by your broker-dealer, whether it is altered or unaltered.
C) is not necessary if unaltered and used as originally intended.
A registered representative has been doing some research on his own. He would like to share the information with some of his clients and sends an email to 15 of them. He also has some prospects he's been working on and sends the email to 12 of them during the same week. Under the FINRA rule on communications with the public, this would be considered A) an electronic communication. B) exempt from the principal approval requirements. C) retail communication. D) correspondence.
C) retail communication.
FINRA Rule 2210, communications with the public, has a number of filing requirements. Some communications are prefiled, others are postfiled, and some are excluded from filing with FINRA. Included in the list of exclusions would be retail communications A) that do no more than identify and recommend a specific registered investment company or family of registered investment companies. B) that do not make any financial or investment recommendation, but only promote a service offered by the member. C) that do no more than identify a national securities exchange symbol of the member or identify a security for which the member is a registered market maker. D) dealing with specific index funds that previously have been filed with FINRA and that are to be used, with the only change being a recommendation of index exchange-traded funds from the same sponsoring organization.
C) that do no more than identify a national securities exchange symbol of the member or identify a security for which the member is a registered market maker.
Which of the following would be defined as a research report? A) A written opinion that the economy is poised for recovery B) A technical analysis that indicates the demand for steel is increasing based on the trading volume and price of the steel industry C) A notice that the rating for a bond has been downgraded by Moody's D) A document that states the banking industry is ready for recovery but ABC Bank will not participate in the recovery and if owned, investors should sell the security
D) A document that states the banking industry is ready for recovery but ABC Bank will not participate in the recovery and if owned, investors should sell the security One of the keys to defining a research report is that it suggests taking action (buy, sell, or hold) on the subject security. The term does not include commentaries on economic, political, or market conditions.
Which of the following forms of written communication must a principal approve before use? A) A preliminary prospectus B) A letter to a customer confirming an annual account review appointment C) An interoffice memorandum D) A letter sent this month to 50 prospective customers offering advice about a stock
D) A letter sent this month to 50 prospective customers offering advice about a stock Letters sent to more than 25 retail investors within any 30-calendar-day period are considered retail communication and must be approved by a principal before use. Letters sent to fewer than 26 retail investors within a 30-calendar-day period are considered correspondence, which does not need prior approval but is subject to subsequent review.
Which of the following is true regarding an institutional communication? A) No more than five retail customers may receive an institutional communication. B) It must be preapproved by a principal. C) It must be filed with FINRA. D) An individual with $50 million or more in total assets is considered an institution.
D) An individual with $50 million or more in total assets is considered an institution. As long as assets are at least $50 million, it is an institution. Institutional communication is not required to have the preapproval of a principal, nor is it required to be filed with FINRA. There must a reasonable belief that the communication will not be seen by any retail investors
A registered representative places an ad in her church newsletter promoting her services as an expert retirement planner. Does this advertisement need to be preapproved by a principal? A) Yes, but only if the newsletter is mailed as opposed to handed out on church property. B) No, because the ad only promotes a service, not a specific product. C) No, because the church is a nonprofit organization, and therefore the ad is exempt from preapproval requirements. D) Yes, the ad will be defined as retail communication, which requires preapproval of a principal.
D) Yes, the ad will be defined as retail communication, which requires preapproval of a principal. assume gonna be seen by more than 25 people whether for service or product, either need preapproval
Options communications may contain projected performance figures (including projected annualized rates of return), provided that A) the client has returned the options account agreement within the specified time. B) all such communications are accompanied or preceded by a warning of the possible defalcation by an officer of the exchange. C) in communications relating to annualized rates of return, the returns are not based on any less than a 30-day experience. D) all such communications are accompanied or preceded by the Options Disclosure Document.
D) all such communications are accompanied or preceded by the Options Disclosure Document. Once the communications get specific enough to include performance figures, prior or concurrent delivery of the ODD is necessary.
A registered representative is reading an article in a popular magazine about the advantages of tax deferral in retirement planning. There is a note that reprints of the article are available. In order to send these reprints to existing and prospective customers, A) filing a copy with FINRA is required. B) pre or post approval by a principal is required. C) the name of the underwriter who commissioned the article must be prominently displayed. D) member alterations to the contents are only to make it consistent with applicable regulatory standards or to correct factual errors.
D) member alterations to the contents are only to make it consistent with applicable regulatory standards or to correct factual errors. This is an example of an independently prepared reprint. It is a form of retail communications and can be used only if the preparer is independent of the member firm. In most cases, these are used "untouched." However, if there are factual errors or statements contrary to FINRA standards, they must be fixed. Preapproval by a principal is required and there is no filing necessary with FINRA.
Guarantees on insurance products A) are permissible for principal values in the separate account. B) are only permissible for companies with an A+ rating from A.M. Best. C) are not allowed. D) must be specific to the insurance contract and not associated investments.
D) must be specific to the insurance contract and not associated investments. Guarantees are only permissible for the specific guarantees within an insurance contract. Companies cannot guarantee returns or even principal values in investments, including separate accounts.
Your broker-dealer has prepared an advertising piece for general distribution to all of its retail customers regarding numerous option strategies. Filing the piece with FINRA is A) required to occur no later than the end of the month during which it was used. B) not required. C) required within 10 business days of the time it is first used or published. D) required at least 10 business days before first use or publication.
D) required at least 10 business days before first use or publication.
