Communications with the public (Rule 2210)

Who reads it decides which rules apply

What rules apply when your firm writes to the public? FINRA Rule 2210 covers that. A communication is anything the firm writes for people outside the firm. Emails, letters, ads and web pages all count. Rule 2210 sorts them into three kinds.

Say Maria is a rep at a broker-dealer. She writes a short letter about a stock she likes. Who reads it decides the rules. An institutional investor is a big professional, like a bank, an insurer or a registered adviser. Anyone with at least 50 million dollars in assets counts too.

A retail investor is everyone else. That's regular people, like you and your neighbor. If Maria's letter goes only to institutional investors, it's an institutional communication.

If retail investors get it, count them over any 30 days. Correspondence is a piece that reaches 25 or fewer retail investors in any 30 days. More than 25 retail investors in 30 days makes it a retail communication. That's the kind with the strictest rules.

The common mistake is counting banks and insurers toward the 25. Only retail readers count. Who reads it decides which of the three kinds it is.

A principal approves retail pieces before they go out

Who has to check a piece before your firm sends it? The answer depends on which of the three kinds it is. A principal is a manager at the firm who is registered with FINRA to supervise reps and approve their work.

A quick reminder: a retail communication reaches more than 25 retail investors in any 30 days. Say Maria wants to mail a stock newsletter to 400 people. That's way past 25, so it's retail. Her principal has to approve it before it goes out.

A letter Maria sends to 10 clients is correspondence. It needs no approval first. The firm still reviews it under its written procedures. Institutional pieces work the same way. A principal reviews them under written procedures, with no approval needed first.

One more case. A live reply Maria types in an online chat forum needs no approval first. The firm still supervises it. The common mistake is thinking every piece needs a principal's approval first. Correspondence and institutional pieces don't.

A retail communication needs a principal's approval before use. The other kinds are reviewed under the firm's procedures.

Some retail pieces also get filed with FINRA

When does FINRA itself see your firm's ads? Filing means sending FINRA a copy so its staff can review it. Only certain retail communications get filed. Correspondence and institutional pieces don't.

Say a broker-dealer joined FINRA eight months ago. It wants to run a newspaper ad. In its first year, a firm files ads in public media, like newspapers, TV or websites. It files at least 10 business days before first use.

Business days are weekdays, not counting holidays. Ads for mutual funds run on a different clock. A mutual fund pools money from many investors and buys a mix of stocks or bonds with it.

A mutual fund's retail ad is filed within 10 business days after first use. That holds however long the firm has been a member. Filing doesn't replace approval. A principal still approves these retail pieces before they're used.

The common mistake is mixing up before and after. A new firm's first-year ads go in before use, and fund ads go in after. Filing means sending FINRA a copy. New firms file public ads before use, and fund ads are filed after.

Worked example: classify the stock-pick letter

1. A rep emails the same stock-pick letter to 40 prospects this week. Which of the three kinds is it, and who has to check it?
2. Step one is who reads it. A prospect is someone who isn't a customer yet. These are regular people, not banks, so they're retail investors.
3. Step two is the count. Forty retail readers in 30 days is more than 25.
4. More than 25 retail readers makes it a retail communication, not correspondence.
5. Step three is who checks it. Retail pieces need a principal's approval, so a principal signs off before it goes out.
6. If the rep had sent it to 12 people, that's 25 or fewer. It would be correspondence, with no approval first and just the firm's review.

Common mistakes

count the retail readers

You picked the wrong category. Go back and count the retail readers. Twenty-five or fewer retail investors in any 30 days is correspondence. More than 25 is a retail communication. Retail is the kind that needs a principal's approval before use.