FC Chapter 7 Flashcards
If a storyboard has been filed, when must the final version of a TV or video advertisement be filed with an SRO?
Within 10 business days of initial broadcast
If a BD’s investment company communications do not include self-created rankings, when must they be filed with FINRA?
Within 10 business days of first use
Unscripted participation in a chat room, radio interview, or Q&A session is considered a __________________.
Unscripted participation in a chat room, radio interview, or Q&A session is considered a public appearance.
An RR sends an e-mail to all of her existing clients as well as 40 prospective clients. What is the e-mail considered?
Since the communication is being provided to more than 25 retail investors, it is considered retail communication.
A member firm’s written and electronic communication must be retained for _____ years from the date of last use.
A member firm’s written and electronic communication must be retained for three years from the date of last use.
What retail communications are required to be filed with FINRA WITHIN 10 days of first use?
Those related to DPPs, CMOs, and ETNs, as well as templates for reports produced by investment analysis tools
If variable product retail communication mentions liquidity, what must also be described?
Any potential fees or expenses
True or False: Member firms may conduct educational seminars on securities.
True
If a firm communicates through an instant messaging service, what must the firm be able to do?
Monitor, archive, and retrieve the messages
True or False: Institutional sales material must be filed with FINRA.
False. It is only required to be available for spot check.
List some examples of retail communication.
Newspapers, magazines, radio, TV, videotape displays, publicly available Web pages, blogs, billboards
True or False: A member firm is prohibited from issuing a press release to the media without filing it with an SRO.
False. Provided the press release is done in accordance with industry regulations, it may be issued.
What interactive device produces simulations and statistical analysis?
The Interactive Technology Tool, which must be filed with FINRA
Retail communication generally requires __________ ____________.
Retail communication requires principal preapproval.
True or False: A non-interactive blog is considered retail communication and requires a principal’s pre-use approval.
True
All forms of communication with the public must be kept for _____ years, but easily accessible for the first ___ years.
All forms of communication with the public must be kept for three years, but easily accessible for the first two years.
True or False: Variable contracts may guarantee the investment results, but not the death benefit.
False. Variable contracts may guarantee the death benefit, but not the investment results.
For how long is a firm required to retain any written or electronic communication?
Three years from the date of last use
If a BD’s investment company communications include self-created rankings, when must they be filed with FINRA?
At least 10 business days prior to use
True or False: If bond ratings appear in retail communication, the member must provide an explanation of the ratings.
True. Additionally, the nature and date of the rating must be disclosed.
True or False: Principal preapproval is required for extemporaneous remarks that take place in a chat room.
False. However, supervisory requirements may require review after the fact.
Retail communication for an investment company may contain what limited information and NOT be considered a prospectus?
Fund objective, emphasis on growth or income, and names of principal officers
Illustrations showing returns for variable products must be for a minimum time of ____ year.
Illustrations showing returns for variable products must be for a minimum time of one year.
For how long must a BD maintain institutional sales material?
Three years
A firm’s investment analysis tool is required to be filed with FINRA if it is made available to _______ investors.
A firm’s investment analysis tool is required to be filed with FINRA if it is made available to retail investors.
Goldwing Software, an incorporated entity, has $42 million in assets. Is Goldwing considered an institutional investor?
No. It does not meet the monetary minimum requirement of $50 million in assets for “any other entity.”
If an instant message is sent to more than 25 retail investors, it is considered ____________________.
If an instant message is sent to more than 25 retail investors, it is considered retail communication.
Define independently prepared reprint.
An unaltered reprint of an article or publicly available company report issued by an independent publisher
With whom is a firm’s investment analysis tool filed?
FINRA’s Advertising Regulation Department
True or False: Variable products are mutual funds.
False
An instant message that is sent to 50 prospective clients is considered ____________________.
An instant message that is sent to 50 prospective clients is considered retail communication.
True or False: An investment analysis tool must be filed with FINRA if it is made available to retail investors.
True
True or False: RRs engaged in chat room discussions at home follow different rules than those that apply in the office.
False. The same due diligence exercised in the office must be followed at home.
When must retail communication concerning CMOs be filed with FINRA?
Within 10 business days of first use
For a firm’s first year as a FINRA member, when must its broadly disseminated retail communications be filed with FINRA?
10 business days prior to their first use
When showing mutual fund returns, what time periods must be included?
1, 5, and 10 years or life of the fund if less
An RR sends an e-mail describing recent tax law changes to five existing clients. What is the e-mail considered?
It is correspondence and would therefore be subject to review.
What are the rules about referring to past recommendations?
The period must cover at least one year and the firm must include all recommendations for the same type of security.
List the three forms of communications with the public.
Retail communication, institutional communication, and correspondence
True or False: Firms may NOT use proprietary names when selling variable contracts.
False. Proprietary names are permitted as long as the policy is described as either variable life or variable annuity.
A posting on a BD’s Facebook or Twitter page is considered what form of communication?
Retail communication
True or False: On request, institutional communication may be provided to a retail client.
Institutional
True or False: Retail communication approval may be provided either in writing or orally.
False. Approval must be provided in written form.
Investment company sales material is prepared and filed by the sponsor. If a BD does not alter it, must it be refiled?
No, provided it is unaltered, duplicate SRO filing is not required.
When will a firm’s institutional sales material be considered retail communication?
When the material is made available to, or redistributed to, the public
True or False: Investment company retail communication that contains performance figures is considered a prospectus.
True
True or False: Investment company ads without self-created rankings, must be filed at least 10 business days before use.
False. Since rankings are NOT included, it must be filed within 10 business days of initial use, not prior to use.
True or False: Institutional sales material requires a principal’s review.
True
An RR uses instant messages and e-mail to communicate with her clients. What is this communication considered?
Correspondence
If a testimonial appears in retail communication, what must be disclosed?
Whether the provider was paid more than a nominal fee and the provider’s qualifications if an expert opinion is implied
Under FINRA’s communication rules, what is meant by the term broadly disseminated?
That material has been created for generally accessible Web sites, print media, and television or radio
Retail communication concerning an investment company must be filed with FINRA within ___________ days of use.
Retail communication concerning an investment company must be filed with FINRA within 10 business days of use.
True or False: A firm may release its recommended investment list to a periodical.
True
When is filing an investment analysis tool with FINRA not required?
When made available only to institutional investors, or sales material simply describes the availability of the tool
Give some examples of correspondence.
Market letters, reports regarding tax law changes, e-mails, and instant messages with limited distribution
What is an investment analysis tool?
An interactive tool that produces illustrations, simulations, and predictions about the likelihood of future performance
A BD may not distribute institutional sales material if it is suspected that it may be redistributed to ___________.
A BD may not distribute institutional sales material if it is suspected that it may be redistributed to the public.
What rate of return is required to be shown in an illustration for a variable product?
0%
What two forms of communication are not subject to pre-use approval by a principal?
Institutional communication and correspondence
In variable contract retail communication, hypothetical rates of return may show a maximum of ___% if __% is also shown.
In variable contract retail communication, hypothetical rates of return may show a maximum of 12% if 0% is also shown.
True or False: Investment company retail communication that has been filed by the fund’s sponsor may be used by a BD.
True
True or False: Mutual fund retail communication must show the maximum sales charge and include all fees and expenses.
True
True or False: A television ad announcing the services offered by a member firm is considered correspondence.
False. It is considered retail communication.
If retail investors are provided direct access to an investment analysis tool, when must FINRA be provided equal access?
Within 10 business days after first use
What retail communications are required to be filed with FINRA at least 10 business days PRIOR to first use?
Those for investment companies with self-created rankings, bond funds including volatility ratings, and security futures
Define a blind recruitment advertisement.
One where a BD does not disclose its name, but instead solicits potential recruits to submit resumes to a box number
True or False: The publisher of an independently prepared reprint may not be an affiliate of the member firm using it.
True
What would trigger the need to refile an investment analysis tool?
Material changes to the tool
A firm is sending to clients an unaltered article prepared by an unaffiliated entity. What is the document called?
An independently prepared reprint
True or False: Institutional communication must be preapproved by a principal and filed with FINRA.
False. Institutional communication is not required to be preapproved or filed with FINRA.
What must a firm do if it makes an investment analysis tool available to retail investors through its Web site?
Provide FINRA with both access to the tool and any template for written reports produced by the tool
For how long must retail communication, institutional communication, and correspondence be maintained?
For three years, but easily accessible for the first two years
Is correspondence subject to principal approval?
No, but it must be reviewed by the firm.
True or False: Institutional communications must always be filed with FINRA.
False. Institutional communications are not required to be filed with FINRA.
In mutual fund retail communicaiton, performance statistics must cover ____-, _____-, and ___-year periods.
In mutual fund retail communication performance statistics must cover one-, five-, and 10-year periods.
What forms of communication are NOT required to be approved by a principal or filed with FINRA?
Retail communications that do not recommend or promote a BD’s services, institutional communications, and correspondence
According to FINRA rules, list some of the persons that are considered institutional investors.
Banks, insurance companies, investment companies, investment advisers, FINRA members and their RRs
What are some of the specific product disclosures that are required for variable contracts?
They are not mutual funds, a client’s goals should be long-term, and surrender charges apply due to early redemption
When is communication subject to principal approval?
If it is being sent to more than 25 existing or prospective clients in a 30-calendar-day period (retail communication)
True or False: An email sent to 25 or more prospects must be approved by a principal.
True. This is an example of retail communication which must be preapproved by a principal.
Under the communication rules, a written letter or e-mails sent to 25 or fewer retail investors is called _____________.
Under the communication rules, a written letter or e-mail sent to 25 or fewer retail investors is called correspondence.
True or False: Institutional communications do NOT require written principal approval prior to use.
True. It is only retail communications that require the written approval of a principal.
Is a principal required to approve a BD’s publicly-available Web site?
Yes. The Web site is considered retail communication since it is available to the public.
If a testimonial is used that relates to a technical aspect of investing, what is required of the provider?
The provider must have the knowledge and experience to form a valid opinion.
Define institutional communication.
Written or electronic communication that is distributed or made available only to institutional investors
True or False: The results provided by an analysis tool must be described as estimates, or statistical probabilities.
True
Correspondence is communication sent to 25 or fewer retail investors. Must the investors be existing or prospective?
The 25 or fewer investors may be any type of investor—existing or prospective.
Retail communication for collateralized mortgage obligations (CMOs) must be filed within ____ business days of use.
Retail communication for collateralized mortgage obligations (CMOs) must be filed within 10 business days of use.
What is the maintenance requirement for all forms of communication with the public?
Three years from last use
True or False: Annuities are appropriate for investors with a 3- to 5-year investment horizon.
False. Annuities are appropriate for investors with long-term goals.
Why does a firm run blind recruitment advertisements?
To maintain anonymity during the period in which it is recruiting personnel
For retail communication regarding variable contract performance, what periods must be covered?
One-, five-, and 10-year periods (or the plan’s/policy’s life)
True or False: A broker-prepared, widely disseminated free writing prospectus (FWP) must be filed with FINRA before use.
False. Broker-prepared, widely disseminated FWPs must be filed WITHIN 10 business days of first use.
What is required if an RR sends a letter to his top 30 existing retail clients that includes a security recommendation?
Since the letter recommends a security and is sent to more than 25 clients, preapproval by a principal is required.
An investment analysis tool made available to retail investors is filed with FINRA within ___ business days after use.
An investment analysis tool made available to retail investors is filed with FINRA within 10 business days after use.
What is the maximum rate of return that may be shown in an illustration for a variable product?
12%
True or False: Instant messages sent from an RR’s home are subject the same oversight as if sent from his BD’s office.
True
An RR posts an entry in an online chat room recommending a specific stock. What is the entry considered?
A public appearance
If a member firm distributes institutional sales material, it must satisfy what two responsibilities?
1) Record the name of the person responsible for its preparation, and 2) educate all RRs who use the material
True or False: An investment analysis tool must be filed with FINRA if it is made available to institutional investors.
False. The filing requirement is based on the tool being made available to retail investors.
True or False: The reprint of an article published by an affiliate of a member is considered independently prepared.
False. The reprint of an article published by an affiliate of a member is considered retail communication.
Under FINRA rules, participating in an electronic interactive forum is considered a __________________.
Under FINRA rules, participating in an electronic interactive forum is considered a public appearance.
If not a bank, S&L, insurance or investment co., an entity requires $___ million in assets to be institutional.
If not a bank, S&L, insurance or investment co., an entity requires $50 million in assets to be institutional.
True or False: When referencing FINRA membership on a Web site, at least one hyperlink to the FINRA Web site is required.
True
Who is responsible for assuring that investment company retail communication is filed with FINRA?
The preparer or the BD who alters the material for its own use
On 5/1, Joe e-mails 20 clients to promote a product. On 7/1, the same e-mail is sent to 15 clients. Is approval needed?
No. Since the promotional e-mail is sent to 25 or fewer clients over 30-calendar days, only review is required.
When is written principal approval required for an independently prepared reprint?
Prior to use
In what different forms may retail communications be delivered?
Both written or electronic
Complete this statement: An ad referring to a 6-year-old fund’s ranking based on total return must refer to …
the total return for the one- and five-year periods by the same ranking entity.
When is a member firm permitted to use testimonials?
When the expert’s qualifications are given and mention is made of any compensation paid to the expert
Along with Web pages, what are some other examples of retail communication?
Notices, circulars, research reports, form letters, telemarketing scripts, and widely distributed instant messages
Define correspondence.
Material that a member firm makes available to 25 or fewer retail investors within any 30-calendar-day period.
An instant message that is sent to 25 prospective customers is considered _______________.
An instant message that is sent to 25 prospective customers is considered correspondence.
What is required when an e-mail is sent to 40 clients and it makes a mutual fund recommendation?
Pre-use approval by a principal
Correspondence is generally subject to _______, but not _________.
Correspondence is generally subject to review, but not approval.
Give some examples of institutional investors.
Banks, S&Ls, insurance or investment companies, investment advisers, or entities with at least $50 million in assets
What forms of communication are required to be approved by a principal, but NOT filed with FINRA?
Email recommendations, telemarketing or sales scripts, independently prepared reprints, and ads promoting products
