A registered representative is preparing to distribute a sales brochure for a new mutual fund to potential investors. According to FINRA rules, which of the following statements regarding the content and filing of this communication is most accurate?
- AThe brochure is considered 'correspondence' and is subject only to post-use review by a principal.
- BPerformance data in the brochure must always be presented on a gross-of-fees basis to avoid misleading investors.
- CThe brochure must prominently display a disclaimer stating that the fund is guaranteed by the FDIC.
- DThe brochure must be filed with FINRA at least 10 business days prior to first use if it is a new fund without a prior filing.
Show answer & explanationAnswer & explanation
Correct answer: D. The brochure must be filed with FINRA at least 10 business days prior to first use if it is a new fund without a prior filing.
FINRA Rule 2210 requires that communications of new FINRA members or for new investment companies (like a new mutual fund) be filed with FINRA 10 business days prior to first use. Mutual funds are not FDIC-guaranteed, performance data must be net of fees, and a sales brochure is 'retail communication,' not 'correspondence.'
Why the other options are wrong
- A. A sales brochure distributed to the public is classified as 'retail communication,' which has stricter filing and approval requirements than 'correspondence.'
- B. Performance data for mutual funds must be presented on a net-of-fees basis to reflect actual investor returns, not gross of fees.
- C. Mutual funds are not FDIC-guaranteed, so such a disclaimer would be false and misleading.
FINRA Rule 2210 Retail Communication Filing
FINRA Rule 2210 governs communications with the public. For retail communications concerning new investment companies (like a new mutual fund) or by new FINRA members, a filing with FINRA is required at least 10 business days prior to first use.
- Applies to retail communications.
- New investment companies or new FINRA members require 10-day pre-use filing.
- Established firms/funds often file within 10 days of first use.
- Must be approved by a principal prior to use.
Memory trick: FINRA 'Files' all 'Communications' to keep things 'Fair' and 'Timely'.