In Regulatory Notice 19-31 (the "Notice"), FINRA focuses on keeping marketing materials fair and balanced, as required by FINRA Rules 2210 – 2220, but also keeping those materials short and sweet.1 The Notice starts off by encouraging member firms to use innovative designs and techniques in their electronic advertising communications. But more importantly, FINRA focuses on encouraging members to be "precise and succinct in their explanations and disclosures." Members were encouraged to avoid including "rote or prescriptive boilerplate" that is not required by FINRA rules. Although FINRA does not object to additional disclosure, the concern is that it may inhibit or distract from an investor's understanding of the required information. For example, a generic one-page marketing piece was shown with the names of six ETFs. FINRA noted that in the small print disclaimer that took up most of the page, the only relevant part was the two sentences stating that an investor should read the prospectus before investing, as it contains relevant information, and providing a link to the prospectus. The other information on the page was considered distracting.

Draftspersons should avoid exhaustive lists of potential risks and stick to information about costs, risks or drawbacks related to what is being sold, and try to find ways to weave it into the body of the communication rather than in separate, longer disclosure (which might be ignored).

FINRA clarified that the extent of the disclosure depends on the type of communication and how it is used in the sales process. Marketing materials promoting or offering specific securities or securities services generally require disclosure, and promotional materials discussing the benefits of a particular product, type of product or service require a balanced discussion of the risks or drawbacks. This is in contrast to the following types of non-promotional communications, which require less disclosure:

  • brand communications;
  • educational communications;
  • reference resources; and
  • post-sale communications.

The Notice is a good reminder to draftspersons to avoid a kitchen sink approach to marketing materials. FINRA's view is that the important parts of the communication should not be competing against an overwhelming amount of lawyerly disclaimers unrelated to the securities or services being promoted.

Footnote

1 The Notice can be found at: http://bit.ly/2ntI9Y6.

Originally published in REVERSEinquiries: Volume 2, Issue 9.
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