In the securities industry, clear and effective communication is essential. This guide delves into the intricacies of communications with the public and telemarketing guidelines as required for the FINRA Securities Industry Essentials (SIE) Exam. Comprehending these concepts will not only aid in passing the exam but will also solidify your understanding of responsible practices as an investment representative.
Classifying Communications
Communications fall into three broad categories:
-
Correspondence: Any written or electronic messages sent to 25 or fewer retail investors within a 30-calendar-day period. It’s subject to review and supervision.
-
Retail Communication: Any written or electronic communication distributed or made available to more than 25 retail investors within a 30-calendar-day period. This includes advertisements and sales literature. Retail communications must be approved by a registered principal.
-
Institutional Communication: This type of communication is solely distributed to institutional investors. While it’s generally subject to less scrutiny than retail communication, it must be supervised and documented by the firm.
Visual Aid: Communication Classification Diagram
graph LR
A(Correspondence) --> B(25 or fewer investors)
A --> C(Retail Communication)
C --> D(More than 25 investors)
A --> E(Institutional Communication)
E --> F(Institutional investors only)
Summary Points
- Correspondence: ≤25 investors; requires review
- Retail Communication: >25 investors; requires approval
- Institutional Communication: Institutional investors; requires supervision
Telemarketing Regulations
Telemarketing practices in the securities industry are governed by specific rules to protect investors:
-
Do-Not-Call Lists: Firms must maintain internal do-not-call lists. If an individual requests not to be called, the firm must comply promptly.
-
Calling Time Restrictions: Telemarketing activities are restricted to the hours of 8:00 AM to 9:00 PM (recipient’s local time), unless prior consent is given.
Real-world Application: Suppose you are an investment representative planning a call campaign. You must ensure that everyone involved is cross-referencing your list with the do-not-call registry, and that all calls are made within the specified time frame to avoid non-compliance issues.
Summary Points
- Do-Not-Call List: Compliance with individual requests required.
- Time Restrictions: Calls allowed only between 8 AM to 9 PM local time.
Additional Resources
- Books: “Securities Industry Essentials Exam for Dummies” by Steven M. Rice.
- Websites: FINRA’s official website provides a wealth of information including guidelines and best practices for communication and telemarketing.
- Online Resources: The NASAA website offers additional study materials and guidance for new investors and professionals.
Glossary
- Correspondence: Communication directed to a limited audience, requiring internal review.
- Retail Communication: Communication aimed at the broader public, requiring principal approval.
- Institutional Communication: Communications exclusive to institutional clients, subject to supervision.
- Do-Not-Call List: A registry firms must maintain to respect consumers’ preferences not to be contacted by telemarketers.
### What is classified as correspondence under FINRA regulations?
- [x] Communication sent to 25 or fewer retail investors within 30 days
- [ ] Communication sent to more than 25 retail investors within 30 days
- [ ] Communication sent to institutional investors only
- [ ] All telemarketing communication
> **Explanation:** Correspondence under FINRA regulations refers to any written or electronic messages sent to 25 or fewer retail investors within a 30-calendar-day period.
### What must a firm do if someone requests to be on a do-not-call list?
- [x] Comply promptly with the request
- [ ] Verify with the national do-not-call registry only
- [ ] Call the individual to confirm
- [ ] Ignore the request
> **Explanation:** Firms are required to promptly comply with requests from individuals who ask to be on a do-not-call list, ensuring no further solicitation calls are made.
### Retail communications require approval from which role within a firm?
- [x] Registered principal
- [ ] Institutional investor
- [ ] General employee
- [ ] External auditor
> **Explanation:** Retail communications, defined as any written or electronic communications made available to more than 25 retail investors, must be approved by a registered principal within the firm.
### What is one main characteristic of institutional communication?
- [x] Directed at institutional investors only
- [ ] Open to all retail investors
- [ ] Requires advertising
- [ ] Governed by FTC rules
> **Explanation:** Institutional communication is limited to distribution among institutional investors and is subject to less scrutiny, though it must still be supervised and documented by the firm.
### Telemarketing calls must be placed during which times?
- [x] 8:00 AM to 9:00 PM Local time
- [ ] 9:00 AM to 5:00 PM Local time
- [x] Based on recipient's timezone
- [ ] 24/7 with customer consent
> **Explanation:** Telemarketing calls are restricted to the hours of 8:00 AM to 9:00 PM in the recipient's local time zone to ensure compliance and minimize consumer inconvenience.
### What does retail communication not include?
- [x] Institutional communication
- [ ] Advertisements
- [ ] Sales literature
- [ ] Retail communications need approval
> **Explanation:** Retail communication excludes institutional communication as it's targeted toward over 25 retail investors and requires principal approval.
### What dictates the calling time restrictions for telemarketers?
- [x] The local time of recipient
- [ ] The local time of caller
- [x] Federal regulations
- [ ] State-specific guidelines
> **Explanation:** The calling time restrictions are mandated by federal regulations, specifically outlining that telemarketing activities should occur between 8:00 AM and 9:00 PM recipient's local time.
### How are institutional communications treated in comparison to retail communications?
- [x] Less scrutiny, requires documentation
- [ ] More scrutiny, requires external approval
- [ ] No supervision needed
- [ ] Must be prominently advertised
> **Explanation:** Institutional communications require documentation and supervision but generally involve less scrutiny than retail communications as they are directed at institutional investors.
### What impact do telemarketing regulations have?
- [x] Protect consumers from unsolicited calls
- [ ] Guarantee successful sales
- [ ] Allow for unlimited call times
- [ ] Eliminate the need for professional courtesy
> **Explanation:** Telemarketing regulations are in place to protect consumers from unsolicited calls at inconvenient times and ensure companies follow balanced calling practices.
### FINRA considers which form of communication as institutional?
- [x] True
- [ ] False
> **Explanation:** True. FINRA classifies messages that are sent only to institutional investors as institutional communication, thus not intended for retail investors.