FINRA Series 7Seeks Business for the Broker-DealerMedium
A firm's advertisement features a testimonial from a well-known client stating the firm's advisory services "doubled my portfolio in one year." The client was paid $500 for providing this testimonial. Under FINRA Rule 2210, which disclosure is required in this advertisement?
- AA disclaimer approved by the SEC's Office of Investor Education must accompany the ad
- BNo disclosure is needed since testimonials reflect genuine client experiences
- CDisclosure that compensation was paid and a statement that the experience may not be representative of other clients' experiences
- DDisclosure only of the exact dollar amount paid, with no mention of representativeness
Show answer & explanationAnswer & explanation
Correct answer: C. Disclosure that compensation was paid and a statement that the experience may not be representative of other clients' experiences
When a testimonial involves compensation of more than $100, FINRA Rule 2210 requires prominent disclosure of that fact, along with a statement that the testimonial may not be representative of the experience of other clients and is not a guarantee of future performance or success.
Why the other options are wrong
- A. There is no SEC Office of Investor Education approval process for such disclaimers.
- B. Testimonials require specific disclosures, especially when compensation is involved.
- D. The exact dollar figure need not be disclosed if compensation exceeds $100; a general statement of payment plus representativeness disclaimer is required.
Testimonial Disclosure Requirements
FINRA Rule 2210 requires that testimonials disclose if compensation exceeding $100 was paid and state that the experience may not represent that of other clients.
- Compensation over $100 must be disclosed.
- Must state the testimonial may not be representative of other clients' experience.
- If given by someone with special expertise, that fact and any conflicts must be disclosed too.
Memory trick: Paid to praise? Say so, and add it might not be the same for everyone else.