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Compliance rules

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Feb 6, 2010 12:03 am

Can anyone explain what the rationale is for FINRA requiring that answers to a newspaper reporter concerning general market conditions such “what do you think caused the market decline today?” and of this list of stocks, “which ones do you think will perform better over the next 12 months?” require the answers to be pre-approved by compliance? It seems to me that it is overregulating, when you can’t answer those questions in public, but you do everyday one on one.

Feb 6, 2010 1:29 am

You’re right, Compliance does Rule!

  But FINRA doesn't require what you mention.  All of that falls under "Public Appearance" which does not require Principal approval.  However, most firms (as a best practice) do require this because they have supervisory responsibility and need to ensure that your commmunications with the public follow the content rules.  Concerning your example, see below.   FINRA Rule 2210(d)1-d   Communications with the public may not predict or project performance, imply that past performance will recur or make any exaggerated or unwarranted claim, opinion or forecast. A hypothetical illustration of mathematical principles is permitted, provided that it does not predict or project the performance of an investment or investment strategy.
Feb 6, 2010 3:21 am

Thanks for the response, I just could not understand how that I could not respond to a reporter with general answers (or opinion) like those we see everyday concerning why the market went up or down,or give an opinion about about the possible growth of a stock as we also see everyday without compliance approval. I do understand a recommendation to buy should have approval, but it seems that what can be done in private should be allowed in public. I do appreciate your informative and candid response.

Feb 7, 2010 1:40 pm

A great lesson here based on my prior experience in the B/D world before going RIA.  I would highly recommend all advisors when they are considering one firm or another in the B/D world to inquire and ask, "can you please provide me a list of all your ‘house rules’ so I know in advance what I can and cannot do and how they interpret FINRAs regulations.’

  Considering many Advisors today are essentially operating their own business/practice -- it's good wisdom to receive a copy of all the rules in writing which may affect your business before you jump in the pool and realize the water is either to hot or cold.
Feb 7, 2010 3:40 pm

I would be shocked if I ever met an FA that read the WSPs (Written Supervisory Procedures) of a firm.

Feb 8, 2010 5:39 pm

this is why…


(A) In making a recommendation in advertisements and sales literature, whether or not labeled as such, a member must have a reasonable basis for the recommendation and must disclose any of the following situations which are applicable:

(i) that at the time the advertisement or sales literature was published, the member was making a market in the securities being recommended, or in the underlying security if the recommended security is an option or security future, or that the member or associated persons will sell to or buy from customers on a principal basis;

(ii) that the member and/or its officers or partners have a financial interest in any of the securities of the issuer whose securities are recommended, and the nature of the financial interest (including, without limitation, whether it consists of any option, right, warrant, future, long or short position), unless the extent of the financial interest is nominal;

(iii) that the member was manager or co-manager of a public offering of any securities of the recommended issuer within the past 12 months.

(B) The member shall also provide, or offer to furnish upon request, available investment information supporting the recommendation. Recommendations on behalf of corporate equities must provide the price at the time the recommendation is made.

© A member may use material referring to past recommendations if it sets forth all recommendations as to the same type, kind, grade or classification of securities made by a member within the last year. Longer periods of years may be covered if they are consecutive and include the most recent year. Such material must also name each security recommended and give the date and nature of each recommendation (e.g., whether to buy or sell), the price at the time of the recommendation, the price at which or the price range within which the recommendation was to be acted upon, and indicate the general market conditions during the period covered.

(D) Also permitted is material that does not make any specific recommendation but which offers to furnish a list of all recommendations made by a member within the past year or over longer periods of consecutive years, including the most recent year, if this list contains all the information specified in subparagraph ©. Neither the list of recommendations, nor material offering such list, shall imply comparable future performance. Reference to the results of a previous specific recommendation, including such a reference in a follow-up research report or market letter, is prohibited if the intent or the effect is to show the success of a past recommendation, unless all of the foregoing requirements with respect to past recommendations are met.

and if you are an RIA you better be cognizant of the prohibition of mentioning past specific recommendations (there are certain exceptions so look up the no action letters).