News & Insights

Finra Provides Guidance On Disclosure Innovations In Advertising And Other Communications With The Public

In recently published Regulatory Notice 19-31, FINRA responded to questions regarding how members can comply with FINRA’s communications rules, Rules 2210 through 2220, when using electronic media.  FINRA issued this guidance to facilitate simplified and more effective disclosure in communications with the public, particularly in the context of members’ marketing and advertising of their products and services using websites, email, social media, search advertisements, mobile applications, and other electronic media.  

FINRA encouraged members be precise and succinct in their explanations and disclosures, noting that any additional explanations or information beyond what is required for rule compliance cannot inhibit an investor’s understanding of the required information.  Further, FINRA explained that information about risks, costs, or drawbacks are more effective when specifically related to the benefits that the communication promotes.

FINRA provided the example of boilerplate language irrelevant to the marketing message as well as disclosures for purposes other than compliance with rule requirements, such as disclaimers related to business relationships or disclosures about intellectual property, as detracting from the impact of information required for the investor to understand the product or service.  FINRA also recommended members consider whether information traditionally provided in footnotes, hedge clauses, or disclaimers can be woven into the marketing message itself.

In regard to the extent of disclosure required, FINRA discussed the types of communications and how the communications are used in the sales process.  While promotional communications discussing the benefits of a particular product, type of product, or service require balancing discussions of the risks or drawbacks, non-promotional communications, such as brand communications, educational communications, reference resources, and post-sale communications, may not require the same level of detail.

We encourage our brokerage firm clients to consider the best method for providing required disclosures in their electronic media public communications, making sure to include sufficient information based on the type of communication, while also excluding any additional information inhibiting the investors’ understanding of the explanations or information required to be disclosed by the rules.