UNIT 05.01-001 Flashcards
Which of the following entities must receive a copy of retail communications to be used by a member firm in connection with the offering of investment company shares?
FINRA
All retail communications used in connection with a new offering must be filed with FINRA. A principal of the firm must approve its use and is responsible for corrections that FINRA may require.
FINRA Rule 2210 treats interactive electronic forum posts, such as social media status updates, as
retail communications.
Interactive electronic forum posts, such as social media status updates, are treated as retail communications. The rule specifically excludes these posts from both the principal pre-use approval requirements and the filing requirements.
Which of the following pieces of sales material is exempt from routine spot-checking by FINRA?
A) An independently prepared reprint that has been materially altered since first published
B) Telemarketing scripts
C) Radio commercials
D) A public communication that simply offers a specific security at a specific price
A public communication that simply offers a specific security at a specific price
Material that makes no claims for a security, but simply states its price, is exempt from spot-checking.
Which of the following is classified as an independently prepared reprint (IPR)?
A) Article on investing produced by the member firm
B) Billboard
C) Market letter
D) Wall Street Journal article on investing
Wall Street Journal article on investing
An IPR consists of any article reprint that meets certain standards designed to ensure that the reprint was issued by an independent publisher (like the Wall Street Journal) and was not materially altered by the member.
Each firm must retain copies of its registered representatives’ correspondence and retail communication according to the recordkeeping rules (FINRA Rule 3110 and SEC rules 17a-3 and 17a-4). Therefore, which of the following are true?
All retail communications and independently prepared reprints must be maintained for three years from the date of last use.
Outgoing electronic securities business correspondence is subject to a three-year recordkeeping requirement.
A separate file containing all retail communications and independently prepared reprints, including the names of the persons preparing and approving their use (not using), must be maintained for three years from the date of last use. The supervision rule also establishes recordkeeping requirements for correspondence. Each member must retain copies of its registered representatives’ correspondence according to the recordkeeping rule (Rule 3110) and SEC recordkeeping rules (rules 17a-3 and 17a-4). A file of such material showing the names of the persons who prepared and approved the correspondence must be kept for at least three years. Outgoing emails are also subject to the three-year retention.
A registered representative of a FINRA member firm is going to present a seminar on retirement planning. It will be a slide show, and no specific advice will be given. The expected attendance is approximately 50 people. Under the FINRA rule on communications with the public,
the slides are considered a retail communication and need principal approval before first use.
Under the FINRA rule on communications with the public, it is only an UNSCRIPTED presentation that needs NO principal approval.
The use of slides changes things, and once more than 25 individuals will see them within a 30-calendar-day period, those slides are retail communications.
As such, principal approval is required. Because the question states that no specific advice will be given, suitability of recommendations is irrelevant.
However, all presentations at seminars should consider the nature of the audience and keep the presentation at the appropriate level.
If a registered representative wishes to place an advertisement in a local newspaper offering her services as a mutual fund representative for XYZ Funds, the advertisement must be approved by
a registered principal.
All retail communications are subject to approval by a registered principal before use. A branch office manager is not necessarily a principal.
Under FINRA rules dealing with communications with the public, a money market mutual fund with a portfolio composed primarily of U.S. government short-term obligations and an NAV that has never varied from $1 per share may state which of the following?
The fund has a portfolio invested primarily in short-term U.S. government debt instruments for stability of principal and regular interest. Since the inception of the fund, the NAV has never varied from $1. The fund will make every effort to maintain the NAV at $1; however, past performance is not an indicator of future results.
Even when fully invested in U.S. government securities, money market mutual funds are specifically prohibited from implying a government guarantee or insurance on their portfolios. The principal value of these instruments is continually subject to market value fluctuation. Mutual funds may state their past performance history with the caveat that past performance is not an indicator of future results.
The rules on communications with the public apply to a registered representative
appearing on a TV show to discuss ___________.
writing a _____________ to be used by the firm’s vice president of sales.
appearing on a TV show to discuss MARKET TRENDS.
writing a SEMINAR SCRIPT to be used by the firm’s vice president of sales.
The rules on communications with the public deal with public appearances, such as a TV program and seminar scripts, as long as the topic is related to the investment business. Making a presentation dealing with religious studies or a school reunion is not covered by public communications rules.
Which of the following is not considered retail communication?
A report created and sent to the firm’s institutional customers only
Written communications only available to institutional customers such as banks, insurance companies, and investment companies are classified as institutional communications. Remember, retail communication means any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period. One would expect that a radio show, an ad in the telephone directory, and market letters would be available to that number of retail investors.
