A registered representative (RR) has developed a detailed spreadsheet to illustrate potential returns of various mutual funds for clients. This spreadsheet includes hypothetical performance projections that are not based on actual historical data and do not include disclaimers about future performance. Before using this tool with clients, what action must the RR take?
- AEnsure the spreadsheet is reviewed and approved by a supervisory principal at their firm.
- BFile the spreadsheet with FINRA for pre-approval as new sales literature.
- CAdd a prominent disclaimer stating that the projections are not guaranteed and are for illustrative purposes only.
- DOnly use the spreadsheet with clients who explicitly request hypothetical projections.
Show answer & explanationAnswer & explanation
Correct answer: A. Ensure the spreadsheet is reviewed and approved by a supervisory principal at their firm.
FINRA rules require that all communications with the public, including sales literature and hypothetical illustrations, be reviewed and approved by a qualified supervisory principal of the firm before use. This ensures compliance with advertising and suitability rules.
Why the other options are wrong
- B. While some materials require filing with FINRA, the immediate and primary responsibility before use is internal firm approval by a principal, not direct filing with FINRA.
- C. While adding a disclaimer is necessary, it is not sufficient on its own; principal approval is still required first.
- D. The requirement for principal approval applies regardless of client request for hypothetical projections.
Sales Literature Approval (FINRA Rule 2210)
FINRA Rule 2210 requires that all communications with the public, including sales literature, advertisements, and hypothetical illustrations, be reviewed and approved by a qualified supervisory principal of the firm before use. This ensures accuracy, balance, and compliance with regulatory standards.
- All public communications require principal approval.
- Includes advertisements, sales literature, hypothetical illustrations.
- Ensures accuracy, fairness, and compliance.
- Some materials may also require FINRA filing.
Memory trick: Before You Speak to the Crowd, Get Principal Approval, Clear and Loud.