welcome remarks and current developments thursday, october
TRANSCRIPT
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Welcome Remarks and Current Developments Thursday, October 5 10:00 a.m. – 11:15 a.m. Join this session to hear from experts regarding changes to the advertising rules resulting from FINRA’s retrospective rule review, including the proposal to permit investment planning projections, recent FINRA guidance, and efforts to modify disclosure methods and content. The panel also includes a discussion of the FINRA Corporate Financing Rule proposal.
Introduction: Thomas Pappas Vice President FINRA Advertising Regulation Moderator: Joseph Savage Vice President and Counsel FINRA Office of Regulatory Analysis Panelists: Alexander Gavis Senior Vice President and Deputy General Counsel Fidelity Investments LLC Thomas Pappas Vice President FINRA Advertising Regulation Joseph Price Senior Vice President and Counsel FINRA Corporate Financing/Advertising Regulation
I. Welcome and Opening Remarks II. Introduction to Panel III. Retrospective Rule Review of Communications Rules
A. Recent Revisions to Rule 2210 B. Proposal to Permit Investment Planning Projections C. Disclosure Initiative
IV. Other Developments A. Related Performance Interpretive Letters B. Proposed Changes to FINRA Corporate Financing Rule C. SEC Risk Alert on Investment Adviser Advertising
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
V. Questions and Answers
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Current Developments Panelist Bios: Introduction: Thomas A. Pappas is Vice President of the FINRA Advertising Regulation Department, which regulates the advertisements, sales literature and correspondence used by FINRA member firms. His responsibilities include rule development, management of the filing and surveillance programs and related enforcement activities. He served in the same role at NASD before its 2007 consolidation with NYSE Member Regulation, which resulted in the formation of FINRA. He was previously registered with Davenport & Company LLC. He received a bachelor’s degree from The University of Richmond and an MBA from Virginia Commonwealth University. Moderator: Joseph P. Savage is Vice President and Counsel in FINRA’s Regulatory Policy Department. Mr. Savage specializes in a broad range of securities regulatory matters, including investment management, investment company, advertising and broker-dealer issues, and regularly appears at conferences regarding these issues. Prior to joining FINRA, he was an Associate Counsel with the Investment Company Institute and an attorney with the law firms of Morrison & Foerster LLP and Hunton & Williams. Mr. Savage also served as a judicial law clerk for United States District Judge John P. Vukasin of the Northern District of California. Mr. Savage holds a bachelor’s degree from the University of Virginia, a master’s degree in public policy from the University of California, Berkeley, and a J.D. from the University of California, Hastings College of the Law, where he served as Note Editor of the Hastings Law Journal. Panelists: Alexander C. Gavis is Senior Vice President & Deputy General Counsel in the Corporate Legal Department of FMR LLC, the parent company of Fidelity Investments, one of the largest brokerage and mutual fund companies in the United States and the leading provider of workplace retirement savings plans. He manages a team of attorneys and professionals responsible for providing legal services to the firm's retail brokerage, stock plan and workplace retirement businesses. He also oversees and manages legal services for Fidelity's businesses involved in electronic and mobile commerce, start-up innovation, and social media. Mr. Gavis provides legal advice on all of Fidelity’s national advertising and marketing initiatives. Prior to joining Fidelity in 1997, Mr. Gavis served as Assistant Counsel at the Investment Company Institute and as Senior Counsel in the Office of General Counsel at the U.S. Securities and Exchange Commission, both in Washington, DC. He also served as a judicial law clerk for The Honorable William T. Allen, Chancellor of the Court of Chancery for the State of Delaware. He has worked in investment banking in New York at Salomon Brothers Inc, handling mergers and acquisitions. Mr. Gavis received his J.D., cum laude, from the University of Pennsylvania Law School, where he served as Editor-in-Chief of the University of Pennsylvania Law Review, and his bachelor’s degree, with High Honors and Phi Beta Kappa, from Swarthmore College. As an adjunct professor at Suffolk University Law School, he teaches the class “Designing Thinking for Lawyers and Business Professionals” and has taught at the Stanford University Design and Law Schools and at Harvard Law School. Mr. Gavis currently serves as chair of FINRA’s Public Communications Committee and past member of the Social Media Task Force (chair) and E-Brokerage (chair) and Membership Committees. Thomas A. Pappas is Vice President of the FINRA Advertising Regulation Department, which regulates the advertisements, sales literature and correspondence used by FINRA member firms. His responsibilities include rule development, management of the filing and surveillance programs and related enforcement activities. He served in the same role at NASD before its 2007 consolidation with NYSE Member Regulation, which resulted in the formation of FINRA. He was previously registered with Davenport & Company LLC. He received a bachelor’s degree from The University of Richmond and an MBA from Virginia Commonwealth University. Joseph E. Price is Senior Vice President, Corporate Financing/Advertising Regulation, at the Financial Industry Regulatory Authority. The FINRA Corporate Financing Department regulates capital-raising activities of broker/dealers; including equity, debt, REIT, closed-end fund, limited partnership offerings and private placements. The FINRA Advertising Regulation Department regulates broker/dealer sales
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 4
materials, mutual fund advertisements, social media and other communications with the public. Mr. Price previously worked in various capacities at the Securities and Exchange Commission. He was an Assistant General Counsel and a Special Counsel in the Office of General Counsel and he was the Deputy Chief of the Office of Disclosure and Investment Adviser Regulation in the Division of Investment Management. Prior to working at the SEC, he was a litigator in the Bureau of Competition at the Federal Trade Commission. Mr. Price also worked as a Compliance Investigator at the Coffee, Sugar & Cocoa Exchange. He was an Adjunct Professor at Georgetown University Law Center from 1994 to 2002, where he taught “Current Issues in Securities Regulation” and “Disclosure under the Federal Securities Laws.” He graduated with distinction in economics from the University of Wisconsin and received his J.D. from Fordham University.
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Welcome Remarks and Current
Developments
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Introduction
Thomas Pappas, Vice President, FINRA Advertising Regulation
Moderator
Joseph Savage, Vice President and Counsel, FINRA Office of Regulatory Analysis
Panelists
Alexander Gavis, Senior Vice President and Deputy General Counsel, Fidelity Investments LLC
Thomas Pappas, Vice President, FINRA Advertising Regulation
Joseph Price, Senior Vice President and Counsel, FINRA Corporate Financing / Advertising Regulation
1
Panelists
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Regulatory Notice 16-41 (SEC Approves Amendments to Rules Governing Communications With the Public)
Investment Company Shareholder Reports.
Investment Company Rankings Backup Material.
Generic Investment Company Communications.
Investment Analysis Tools.
Templates.
Bond Mutual Fund Volatility Ratings Communications.
Rule Changes Effective as of January 9, 2017.
2
Recent Revisions to Rule 2210
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Regulatory Notice 17-06 (FINRA Requests Comment on Proposed Amendments to Rules Governing Communications with the Public)
Current Projections Rule
Proposal
– Customized Hypothetical Investment Planning Illustrations
– Asset Allocation or Other Investment Strategy
– Reasonable Basis
– Required Disclosures
Comments on Proposal
3
Investment Planning Illustration Projections
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Disclosures in Firm Communications
Stanford Law School Disclosure Project
FINRA Staff Disclosure Analysis
Required
Supplemental
Other
4
Disclosure Initiative
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Institutional Communications Only
Hartford Funds Distributors, LLC (2015)
K&L Gates LLP (2017)
Conditions for Interpretive Relief
Advertising Regulation FAQs
6
Related Performance Interpretive Letters
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Regulatory Notices 17-14 (FINRA Requests Comment on FINRA Rules Impacting Capital Formation) and 17-15 (FINRA Requests Comment on Proposed Amendments to the FINRA Corporate Financing Rule)
Corporate Financing Rule Proposal
Filing Requirements and Exemptions
Disclosure Requirements
Underwriting Compensation
Other Provisions
Comments on Proposal
7
FINRA Corporate Financing Rule Proposal
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
OCIE List of Compliance Issues for RIAs:
Misleading Performance Results
Misleading One-on-One Presentations
Claims of Compliance with Voluntary Performance Standards
Cherry-Picked Profitable Stock Selections
Misleading Selection of Recommendations
Policies and Procedures
Observations from Touting Initiative
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SEC Risk Alert on Investment Adviser Advertising
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Welcome Remarks and Current Developments Thursday, October 5 10:00 a.m. – 11:15 a.m. Resources Recent Revisions to Rule 2210
FINRA Regulatory Notice 16-41, SEC Approves Amendments to Rules Governing Communications with the Public (October 2016)
www.finra.org/industry/notices/16-41
Proposal to Permit Investment Planning Illustrations
FINRA Regulatory Notice 17-06, FINRA Requests Comment on Proposed Amendments to Rules Governing Communications with the Public (February 2017)
www.finra.org/industry/notices/17-06
Disclosure Initiative:
Margaret Hagan, Stanford Law School Law and Institute of Design, Designing 21st-Century Disclosures for Financial Decision Making (Summer 2016)
www-cdn.law.stanford.edu/wp-content/uploads/2016/10/Hagan-Designing-21st-Century-Disclsoures-for-Wise-Financial-Decision-Making-FINAL-2016.pdf
Related Performance Interpretive Letters:
Interpretive Letter to Clair Pagnano, K&L Gates (June 9, 2017)
www.finra.org/industry/interpretive-letters/june-12-2017-1200am Proposed Changes to FINRA Corporate Financing Rule:
FINRA Regulatory Notice 17-14 (FINRA Requests Comment on FINRA Rules Impacting Capital Formation) (April 2017) www.finra.org/industry/notices/17-14
FINRA Regulatory Notice 17-15 (FINRA Requests Comment on Proposed Amendments to Corporate Financing Rule) (April 2017) www.finra.org/industry/notices/17-15
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
SEC Risk Alert on Investment Adviser Advertising
SEC Office of Compliance Inspections and Examinations, National Exam Program Risk Alert, Vol. VI, Issue 6 (The Most Frequent Advertising Rule Compliance Issues Identified in OCIE Examinations of Investment Advisers) (September 14, 2017) www.sec.gov/files/risk-alert-advertising.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Advertising Compliance Boot Camp: Fundamentals of FINRA Rule 2210 Thursday, October 5 11:30 a.m. – 12:30 p.m. Designed for compliance and marketing professionals who are new to FINRA’s advertising rules or experienced practitioners interested in a refresher. This session provides an overview of FINRA’s Communications With the Public rule, including the filing requirements, internal approval and supervision, and the content standards. FINRA panelists answer questions about how to apply the rules to financial services communications and marketing materials, while providing tips on how to submit communications for review by Advertising Regulation Department staff.
Moderator: Gregory Riviello Director FINRA Advertising Regulation Panelists: Stephanie Gregory Principal Analyst FINRA Advertising Regulation Timothy Holland Manager FINRA Advertising Regulation Steven O'Mara Associate Director FINRA Advertising Regulation
I. Introduction
II. Advertising Regulation Department overview
III. Definitions, supervision and filing requirements A. Internal approval and recordkeeping B. Retail filing requirements and exemptions
IV. Content standards
A. General content standards B. Specific content standards
V. Wrap-up
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
Advertising Compliance Boot Camp: Fundamentals Panelist Bios: Moderator: Gregory Riviello is a director in FINRA’s Advertising Regulation Department which is responsible for the regulation of FINRA member firms’ communications with the public. Mr. Riviello is responsible for supervising the daily activities of 25 staff devoted to the review of communications filed with the Department. He provides guidance to Department staff and FINRA firms on the application of the advertising rules and interpretations and also assists with the development of these rules. His other responsibilities include coordinating the Department’s recruiting, training and quality control functions. Mr. Riviello has spoken about various advertising regulation topics at industry events and at the FINRA Advertising Regulation Conferences. Mr. Riviello has more than 35 years of experience in the securities industry including 27 years with the Advertising Regulation Department. He is a graduate of West Chester State University in West Chester, Pennsylvania, and holds an MBA from the University of Maryland. Panelists: Stephanie Gregory is Principal Analyst in FINRA's Advertising Regulation Department. Prior to joining FINRA in 2004, Ms. Gregory worked in compliance and advertising review with a member firm. Ms. Gregory received a bachelor’s degree in economics and political science from Boston University, and her law degree from Pennsylvania State University Dickinson School of Law. Timothy P. Holland is a manager in the FINRA Advertising Regulation Department, and assists in supervising the activity of a group of analysts that reviews sales communications filed by member firms. Mr. Holland joined the Advertising Regulation Department in 2004. He also worked in the CRD/Public Disclosure Department of NASD from 1996 to 2000. Mr. Holland has bachelor’s degrees from the University of Maryland at College Park and received his law degree from The Catholic University of America, Columbus School of Law. Steven O’Mara is Associate Director in FINRA’s Advertising Regulation Department. Before joining Advertising Regulation, he spent three years in the Market Regulation Department. He also worked for four years as a compliance officer for a regional brokerage firm. Mr. O’Mara holds a master’s degree in business from Johns Hopkins University and a bachelor’s degree from Saint Anselm College.
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Advertising Compliance Boot Camp:
Fundamentals of FINRA Rule 2210
0
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Moderator
Gregory Riviello, Director, FINRA Advertising Regulation
Panelists
Stephanie Gregory, Principal Analyst, FINRA Advertising
Regulation
Timothy Holland, Manager, FINRA Advertising Regulation
Steven O'Mara, Associate Director, FINRA Advertising
Regulation
1
Panelists
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
The role of the Advertising Regulation Department.
The definitions, approval, review and recordkeeping
requirements in FINRA Rule 2210.
The filing requirements and filing exemptions.
The content standards of FINRA Rule 2210.
How to comply with these content standards.
2
By the end of the session, you should know:
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Advertising filings review program
Complex reviews
Sweeps
Member outreach and education
Contact information
Website: www.finra.org/Advertising
Telephone number: 240-386-4500
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FINRA Advertising Regulation Department
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 4
FINRA Rule 2210: Introduction and Definitions
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Institutional communications
Flexible supervision:
– Risk-based procedures
– Training
– Surveillance
– Follow-up to correct problems
Internal use only communications used within a single broker
dealer are not subject to FINRA Rule 2210; however, each firm
must adopt procedures to supervise this area of its business.
5
Supervision of Institutional Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Correspondence
Flexible supervision:
– Risk-based procedures
– Training
– Surveillance
– Follow-up to correct problems
6
Supervision of Correspondence
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
An appropriately qualified, registered principal must approve each retail communication prior to use or filing with FINRA.
Exceptions from principal approval include:
Retail communications, supervised in the same manner as correspondence, that:
– Do not make any financial or investment recommendation or promote a product or service;
– Are posted on an online interactive electronic forum (social media);
– Are excepted from the definition of “research report” (e.g., market letters); and,
– Are filed by another firm, and found by FINRA to be consistent with standards.
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Internal Approval of Retail Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Retain all communications for 3 years as required by the Securities Exchange Act of 1934 (SEA) Rule 17a-4(b).
Records for retail and institutional communications must include:
Copy of the communication and the dates of first and last use;
Name of the registered principal approving the communication;
Date of approval; and,
Information concerning the source of any statistical table, graph, or illustration.
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Recordkeeping
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Filing requirements apply only to certain retail communications used with more than 25 retail customers within 30 calendar days.
Retail communications that must be filed 10 business days prior to first use:
New member firms must file certain retail communications for one year based on their membership effective date. These include:
– Electronic or public media (i.e., any generally accessible website, newspaper, magazine, radio, television, signs and billboards.)
Registered investment company ranking that is not generally published or is the creation of the investment company.
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Filing Requirements for Retail Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Retail communications that must be filed within 10 business days of first use:
Promotion or recommendation of specific registered investment companies or families:
– Mutual funds, exchange-traded funds, closed-end funds, unit investment trusts, variable annuities, and variable life insurance products;
Public direct participation programs; and,
CMOs and derivative products registered under the Securities Act of 1933.
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Filing Requirements for Retail Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Institutional communications
Correspondence
Independently prepared reprints or excerpts of articles issued by unaffiliated publishers used without material change
Retail communications that do not make any financial or investment recommendation or promote a product or service
Previously filed communications not materially changed
“Laundry list” of investment products
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Exceptions to the Filing Requirements
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Statistical or non-narrative updates to previously filed templates
Templates containing non-predictive narrative information
Press releases made available only to the media
Research reports on exchange-listed securities
Interactive social media posts
Prospectuses, annual or semi-annual reports filed with the SEC
Free writing prospectuses that are not required to be filed with the SEC
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Exceptions to the Filing Requirements
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
The Department also accepts voluntary filings.
Filings should be sent electronically through the Advertising Regulation Electronic Files (AREF) system.
Filing submissions should include:
Descriptive title of ad;
Name and title of the principal who approved the communication;
Date of approval;
Actual or anticipated date of first use; and,
Intended audience and use.
13
Submitting Communications to FINRA
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
General standards for all communications
Communications must be fair and balanced, and must provide a sound basis for evaluating the facts regarding any product or service.
Material information that would cause the communication to be misleading may not be omitted:
– For example, risks, fees, and restrictions or conditions.
False, exaggerated, unwarranted, promissory, or misleading statements or claims are prohibited.
Important or material information should not be in legends and footnotes.
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FINRA Rule 2210 General Content Standards
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
General standards for all communications
Clarity and context
Nature of the audience
Communications may not predict or project performance or
imply that past performance will recur, except for:
– Hypothetical illustrations of mathematical principles, such as compound
interest, that do not predict or project performance;
– Investment analysis tools (FINRA Rule 2214); and,
– Reasonable price targets in equity research reports (FINRA Rule 2241).
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FINRA Rule 2210 General Content Standards
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Retail communications and correspondence
FINRA member name
Tax-free claims and tax-deferred compounding
Fees and expenses for open-end management investment
company performance
Testimonials
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FINRA Rule 2210 Specific Content Standards
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Retail communications
Comparisons must disclose all material differences
Recommendations: disclosure concerning conflicts of interest
BrokerCheck
All communications
Use of FINRA name and linking to the FINRA website
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FINRA Rule 2210 Specific Content Standards
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Rule covers participation in seminars, forums, radio or
TV interviews, or other unscripted speaking activities.
General content standards of FINRA Rule 2210 apply.
Associated persons must have a reasonable basis for
any recommendations and must disclose:
The nature of any more than a nominal financial interest; and,
Any other actual material conflict of interest.
18
Public Appearances
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Each firm must establish appropriate procedures for the
supervision of public appearances.
Videos or audio recordings of public appearances placed on a
website must be approved by a principal prior to posting.
Any scripts, slides, handouts or other written materials used in
conjunction with public appearances must comply with all
applicable provisions.
19
Public Appearances
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
FINRA advertising rules 2210 – Communications With the Public
2211 – Communications With the Public About Variable Life Insurance and Variable Annuities
2212 – Use of Investment Companies Rankings in Retail Communications
2213 – Requirements for the Use of Bond Mutual Fund Volatility Ratings
2214 – Requirements for the Use of Investment Analysis Tools
2215 – Communications With the Public Regarding Security Futures
2216 – Communications With the Public About Collateralized Mortgage Obligations
2220 – Options Communications
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Resources
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
FINRA advertising rules
2241 – Research Analysts and Research Reports
2242 – Debt Research Analysts and Debt Research Reports
3110 – Supervision
3160 – Networking Arrangements between Members and
Financial Institutions
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Resources
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
SEC, MSRB and SIPC advertising rules enforced by FINRA
SEC Rule 482 – Advertising by an Investment Company as Satisfying Requirements of Section 10
SEC Rule 34b-1 – Sales Literature Deemed to be Misleading
SEC Rule 135A – Generic Advertising
SEC Rule 134 – Communications Not Deemed a Prospectus
SEC Rule 433 – Conditions to Permissible Post-Filing Free Writing Prospectuses
Municipal Securities Rulemaking Board (MSRB) Rule G-21 Advertising
Securities Investor Protection Corporation (SIPC) Advertising By-Law Article 10, Section 4
22
Resources
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Questions and Answers
23
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Advertising Compliance Boot Camp: Fundamentals of FINRA Rule 2210 Thursday, October 5 11:30 a.m. – 12:30 p.m. Resources FINRA Advertising Rules
FINRA Rule 2210. Communications With the Public
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=10648
FINRA Rule 2211. Communications with the Public About Variable Life Insurance and Variable Annuities
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=12586
FINRA Rule 2212. Use of Investment Companies Rankings in Retail Communications
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=10649
FINRA Rule 2213. Requirements for the Use of Bond Mutual Fund Volatility Ratings
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=10650
FINRA Rule 2214. Requirements for the Use of Investment Analysis Tools
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=10651
FINRA Rule 2215. Communications With the Public Regarding Security Futures
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=10652
FINRA Rule 2216. Communications With the Public About Collateralized Mortgage Obligations
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=10653
FINRA Rule 2220. Options Communications
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=8623
FINRA Rule 2241. Research Analysts and Research Reports
http://finra.complinet.com/en/display/display.html?rbid=2403&record_id=16474&element_id=11946&highlight=2241#r16474
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
FINRA Rule 2242. Debt Research Analysts and Debt Research Reports
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=11953
FINRA Rule 3110. Supervision
http://finra.complinet.com/en/display/display.html?rbid=2403&record_id=17567&element_id=11345&highlight=3110#r17567
FINRA Rule 3160. Networking Arrangements between Members and Financial Institutions
http://finra.complinet.com/en/display/display.html?rbid=2403&record_id=14966&element_id=9093&highlight=3160#r14966
SEC, MSRB and SIPC Advertising Rules
SEC Rule 482 – Advertising by an Investment Company as Satisfying Requirements of Section 10
www.sec.gov/rules/final/33-8294.htm www.law.cornell.edu/cfr/text/17/230.482
SEC Rule 34b-1 – Sales Literature Deemed to be Misleading
www.sec.gov/rules/final/33-8294.htm www.law.cornell.edu/cfr/text/17/270.34b-1
SEC Rule 135A – Generic Advertising
www.sec.gov/rules/proposed/s71702/s71702-43.pdf www.law.cornell.edu/cfr/text/17/230.135a
SEC Rule 134 – Communications Not Deemed a Prospectus
http://finra.complinet.com/en/display/viewall_display.html?rbid=1189&element_id=1160000715 www.law.cornell.edu/cfr/text/17/230.134
SEC Rule 433 – Conditions to Permissible Post-Filing Free Writing Prospectuses
www.law.cornell.edu/cfr/text/17/230.433
Municipal Securities Rulemaking Board (MSRB) Rule G-21 Advertising
www.msrb.org/Rules-and-Interpretations/MSRB-Rules/General/Rule-G-21.aspx
Securities Investor Protection Corporation (SIPC) Advertising By-Law Article 10, Section 4
www.sipc.org/about-sipc/statute-and-rules/bylaws
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Current Trends and Topics for Investment Company Communications Thursday, October 5 11:30 a.m. – 12:30 p.m. Join FINRA staff and industry panelists as they discuss advertising compliance issues concerning registered investment companies, including mutual funds, ETFs and closed-end funds. The panel includes discussions on current trends, changes to FINRA Rule 2210 and recent regulatory interpretations, including related performance. The panelists also share tips to strengthen the marketing and compliance relationship when developing compliant communications.
Moderator: Derek Ashworth Associate Director FINRA Advertising Regulation Panelists: Darrian Hopkins Director and Compliance Officer TIAA Lynn Lawson Associate Manager FINRA Advertising Regulation Danielle Nicholson Smith Vice President and Legal Counsel - U.S. Communications and Digital Services T. Rowe Price Investments Services, Inc.
I. Introduction
II. Discussion of Advertising Review Process A. T. Rowe Price Process B. TIAA Process C. Advertising Department Process
III. Recent Regulatory Updates Affecting Investment Companies
A. Rule 2210 Amendments (Exemptions from filing requirement) B. Related Performance C. SEC – Money Market Fund Disclosure (effective October 2016) D. DOL Rule
IV. Themes in Communications – What are investment company communications discussing?
A. Common discussions (e.g., active vs. passive debate, hunt for yield, new investment strategies)
B. Concerns (e.g., comparisons, accurate descriptions, risks)
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
C. Product space (e.g., mutual funds, exchange-traded funds, closed-end interval funds, digital investment advice)
D. Risk Disclosure for Current Market Conditions (SEC Guidance Update, March, 2016)
V. Communication Mediums A. Successes and challenges of creating communications for different mediums
(disclosure) B. Social media parameters (how do firms determine what to use)
VI. Strengthening the Marketing, Legal and Compliance Relationship
A. T. Rowe Price – Agile process B. TIAA – Collaborative process C. FINRA – How FINRA can contribute
VII. Q&A and Wrap Up
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 3
Current Trends and Topics for Investment Company Communications Panelist Bios: Moderator: Derek Ashworth is Associate Director in FINRA’s Advertising Regulation Department. The department protects investors by ensuring broker-dealer members of FINRA use communications that are fair, balanced and not misleading. Mr. Ashworth’s primary responsibility is managing staff members dedicated to the routine review of member firm communications. Mr. Ashworth also participates in the Department’s outreach efforts including serving as a panelist in prior FINRA conferences and presenting during selected FINRA Compliance Boot Camps. He has been with the Advertising Regulation Department for 17 years. Prior to joining FINRA, Mr. Ashworth was a program manager for a business and education partnership at Nova Southeastern University in Fort Lauderdale, FL. Previous to this role, he was a specialty banker and registered representative with First Union in West Palm Beach, FL. Mr. Ashworth received his bachelor’s degree from Stetson University and completed his M.B.A. at Johns Hopkins University. Panelists: Darrian Hopkins is Director and Compliance Officer responsible for leading TIAA’s Marketing Compliance and Oversight Program. This team leads all oversight activities for TIAA’s marketing review program to ensure compliance with applicable advertising laws, rules and regulations. Mr. Hopkins joined TIAA in February 2006 from FINRA, where he was an Associate Supervisor in the Advertising Regulation Department. Mr. Hopkins spent nine and a half years in the Department and, prior to that, he spent five years with the U.S. Securities and Exchange Commission also in Washington, DC. While at FINRA, Mr. Hopkins was a frequent speaker on various panels at FINRA’s annual Advertising Regulation Conference. Mr. Hopkins is a graduate of the University of South Carolina. Lynn Lawson is an Associate Manager in FINRA’s Advertising Regulation Department. Her primary responsibilities include training and mentoring assigned staff and conducting reviews of complex communications for compliance with applicable advertising rules. She is also the Department’s Training Committee Coordinator and has been a speaker at FINRA’s Advertising Regulation Department annual conference since 2011. Prior to joining FINRA, she worked as a contract attorney and in the financial services industry. She holds Series 7, 24 and 63 registrations. Ms. Lawson is also a graduate from The Catholic University of America, Columbus School of Law and earned a B.A. in English from Spelman College. She is also holds the designation of a Certified Regulatory and Compliance Professional from the FINRA Institute at Wharton and is a member of the District of Columbia Bar. Danielle Nicholson Smith is Legal Counsel for U.S. Communications and Digital Services and Vice President of T. Rowe Price Investment Services, Inc. She joined T. Rowe Price in 1992. Most of her 25 years in the industry have been spent on the application of FINRA and SEC Advertising Rules to communications with the public. Ms. Smith oversaw the principal review and filing with FINRA of all of the firm’s mutual fund advertising and sales materials for over 15 years. She serves on the Advertising Rules Committee of the Investment Company Institute and has been a speaker on regulation of social media at the FINRA annual conference. Ms. Smith holds a bachelor’s degree from Smith College and a law degree from the University of Maryland School of Law.
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Current Trends and Topics for
Investment Company Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Moderator
Derek Ashworth, Associate Director, FINRA Advertising Regulation
Panelists
Darrian Hopkins, Director and Compliance Officer, TIAA
Lynn Lawson, Associate Manager, FINRA Advertising Regulation
Danielle Nicholson Smith, Vice President and Legal Counsel - U.S.
Communications and Digital Services, T. Rowe Price Investments
Services, Inc.
1
Panelists
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Under the “Schedule” icon on the home screen,
Select the day,
Choose the Current Trends and Topics for Investment
Company Communications session,
Click on the polling icon:
2
To Access Polling
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Segment Topics
Advertising Review Process
Regulatory Updates Affecting Investment Company Communications
Trends in Investment Company Communications
Creating Communications for Different Media
Strengthening the Marketing, Legal and Compliance Relationship
Questions & Answers
3
Agenda
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Understanding the Communications Review
Procedure
TIAA
T. Rowe Price Investment Services, Inc.
FINRA
4
Advertising Review Process
Communication AnalysisComplies or
Needs Revisions
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Tips for Filing Submissions with FINRA
Indicate if the communication is promoting a new product or represents a new marketing campaign
Explain how the communication will be used and describe necessary context
Provide supporting documents (e.g., prospectus)
Clarify if the communication will be preceded or accompanied by a prospectus
Indicate if previous versions of the communication have been filed
Identify the landing page or relevant ‘linked’ content for digital communications
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Advertising Review Process
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Rule 2210 Amendments – Filing Exclusions
Investment company shareholder reports
Generic investment company communications
Templates
– Expanded to include non-predictive narrative content
Backup material for investment company performance
rankings & comparisons
6
Regulatory Updates Affecting Investment Company
Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
1. What filing exclusion has had the most impact on
your firm’s communications?
a. Investment company shareholder reports
b. Generic investment company communications
c. Templates (expansion to include non-predictive narrative content)
d. Back-up material for investment company performance rankings &
comparisons
e. All of the above
7
Polling Question 1
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Guidance for Related Performance in Institutional
Communications
Use of related performance for continuously offered closed-end
funds is permitted – consistent with conditions in June 9, 2017
Interpretive Letter
Related performance can be net of fees of the subject mutual fund
(Interpretive Guidance Question, March 9, 2017)
Related performance guidance can apply to actively managed
ETFs (Interpretive Guidance Question, March 9, 2017)
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Regulatory Updates Affecting Investment Company
Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Money Market Fund Reforms (October, 2016)
Amendments to the disclosure statements that must appear in
money market fund communications
DOL Fiduciary Rule
Firm preparation and response
9
Regulatory Updates Affecting Investment Company
Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Themes in Discussions
Great Debate: Active or Passive Management
Hunt for Yield
Benefits of Multi-factor Strategies
Protection from Managed Volatility Strategies
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Trends in Investment Company Communications
Products
Trends
Themes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Potential Discussion Concerns
Fair and balanced comparisons
Accurate description of investment or strategy
Explanation of risks
Consideration of the audience
11
Trends in Investment Company Communications
Products
Trends
Themes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Product Considerations
Closed-end funds
– Interval funds
Alternative funds
– Floating-rate loan funds
–Unconstrained bond funds
– Long/short funds
–Multi-currency funds
Digital investment advice tools
12
Trends in Investment Company Communications
Products
Trends
Themes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Disclosure Practices
Consider market conditions and the impact on fund risks
Assess whether current risk disclosure is adequate
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Trends in Investment Company Communications
Products
Trends
Themes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Challenges of Responsive Web Design Technology
Web content used in other device formats (smartphones or
tablets)
Presentation of disclosure (clarity, proximity and prominence)
Considerations for Social Media Presence
Identifying audience and channel(s)
Incorporating compliance in strategy
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Creating Communications for Different Media
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Implementing Effective Practices
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Strengthening the Marketing, Legal and Compliance
Relationship
Marketing
ComplianceLegal
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
2. How would you characterize the collaboration
including responsiveness between the compliance,
marketing and legal teams/staff at your firm when
creating communications?
a. Extremely responsive
b. Very responsive
c. Somewhat responsive
d. Not so responsive
e. Not at all responsive
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Polling Question 2
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Implementing Effective Practices
Collaboration
Agility
FINRA feedback
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Strengthening the Marketing, Legal and Compliance
Relationship
Marketing
ComplianceLegal
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Current Trends and Topics for
Investment Company Communications
Questions & Answers
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Current Trends and Topics for Investment Company Communications Thursday, October 5 11:30 a.m. – 12:30 p.m. Resources General Guidance (Communications With the Public) Notices
FINRA Regulatory Notice 17-18, Guidance on Social Networking Websites and Business Communications (April 2017)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-17-18.pdf
FINRA Regulatory Notice 16-41, SEC Approves Amendments to Rules Governing Communications With the Public (October 2016)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-16-41.pdf
FINRA Regulatory Notice 15-50, SEC Approves Rule Requiring Members’ Websites to Include a Readily Apparent Reference and Hyperlink to BrokerCheck (December, 2015)
www.finra.org/sites/default/files/Notice_Regulatory_15-50.pdf
FINRA Regulatory Notice 15-17, Guidance on Rules Governing Communications With the Public (May 2015)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory_Notice_15-17.pdf
FINRA Regulatory Notice 15-16, FINRA Requests Comment on Proposed Amendments to Rules Governing Communications With the Public (May 2015)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory_Notice_15-16.pdf
FINRA Regulatory Notice 13-03, FINRA Provides Guidance on New Rules Governing Communications With the Public (January 2013)
www.finra.org/sites/default/files/NoticeDocument/p197615.pdf
FINRA Regulatory Notice 12-29, SEC Approves New Rules Governing Communications With the Public – Effective Date: February 4, 2013 (June 2012)
www.finra.org/sites/default/files/NoticeDocument/p127014.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
FINRA Regulatory Notice 11-49, Advertising Regulation: FINRA Provides Guidance on Advertising Regulation Issues (October 2011)
www.finra.org/sites/default/files/NoticeDocument/p124925.pdf
FINRA Regulatory Notice 11-39, Guidance on Social Networking Websites and Business Communications (August 2011)
www.finra.org/sites/default/files/NoticeDocument/p124186.pdf
FINRA Regulatory Notice 10-06, Guidance on Blogs and Social Networking Web Sites (January 2010)
www.finra.org/sites/default/files/NoticeDocument/p120779.pdf
Miscellaneous
Podcast, Communications with the Public Rule Amendments (January 9, 2017)
www.finra.org/industry/podcasts/communications-public-rule-amendments
Podcast, Communications With the Public Consolidated Rule – Part 2 (February 26, 2013)
www.finra.org/industry/podcasts/communications-public-consolidated-rule-%e2%80%93-part-2
Podcast, Communications with the Public Consolidated Rule – Part 1 (February 12, 2013)
www.finra.org/industry/podcasts/communications-public-consolidated-rule-%e2%80%93-part-1
Advertising Regulation Frequently Asked Questions (FAQ) Frequently asked questions related to advertising regulation (January 8, 2017)
www.finra.org/industry/issues/faq-advertising
FINRA Information Notice Use of FINRA Logo (January 2016)
www.finra.org/sites/default/files/notice_doc_file_ref/Information-Notice_010816.pdf
Mutual Funds Rules and Notices
FINRA Rule 2210. Interpretive Guidance Questions and Answers Provision of Related Performance (March 9, 2017)
www.finra.org/industry/finra-rule-2210-questions-and-answers
FINRA Regulatory Notice 08-82, FINRA Reminds Firms of Their Sales Practice Obligations with Regard to Cash Alternatives (December 2008)
www.finra.org/sites/default/files/NoticeDocument/p117559.pdf
FINRA Regulatory Notice 08-81, FINRA Reminds Firms of Their Sales Practice Obligations with Regard to the Sale of Securities in a High Yield Environment (December 2008)
www.finra.org/sites/default/files/NoticeDocument/p117558.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 3
NASD Notice to Members 06-48, SEC Approves Amendments to NASD Rules 2210 and 2211 to Require Disclosure of Fees and Expenses in Mutual Fund Performance Sales Material (September 2006)
www.finra.org/sites/default/files/NoticeDocument/p017302.pdf
NASD Notice to Members 06-05, SEC Approves Permanent Rules Concerning Bond Mutual Fund Volatility Ratings – Effective Date: December 27, 2005 (January 2006)
www.finra.org/sites/default/files/NoticeDocument/p015873.pdf
NASD Notice to Members 04-86, Investment Analysis Tools (November 2004)
www.finra.org/sites/default/files/NoticeDocument/p012413.pdf
NASD Notice to Members 00-21, NASD Regulation Reminds Members of Their Responsibilities When Advertising Recent Mutual Fund Performance (April 2000)
www.finra.org/sites/default/files/NoticeDocument/p004122.pdf
NASD Notice to Members 98-107, NASD Reminds Members Of Their Obligations To Disclose Mutual Fund Fees (December 1998)
www.finra.org/sites/default/files/NoticeDocument/p004929.pdf
Miscellaneous
SEC Guidance Update, Fund Disclosure Reflecting Risks Related to Current Market Conditions No. 2016-02 (March 2016)
www.sec.gov/investment/im-guidance-2016-02.pdf
FINRA Interpretive Letter, The use of related performance information in institutional communications, subject to specific conditions, is consistent with the applicable standards of FINRA Rule 2210. (May, 2015)
www.finra.org/industry/interpretive-letters/may-12-2015-1200am
Podcast, Cash Alternatives (March 16, 2009)
www.finra.org/industry/podcasts/cash-alternatives
Regulatory & Compliance Alert, Inaccurate Performance Graphs Result in Formal Action (Summer 2000), Page 9
www.finra.org/sites/default/files/RCA/p002377.pdf
Regulatory & Compliance Alert, Sudden Performance Changes May Require More Information (Summer 1999), Page 16
www.finra.org/sites/default/files/RCA/p002381.pdf
Investor Alerts
Investor Alert, Updated: Duration—What an Interest Rate Hike Could Do to Your Bond Portfolio (March 6, 2017)
www.finra.org/investors/alerts/duration-what-interest-rate-hike-could-do-your-bond-portfolio
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 4
Investor Alert, Frontier Funds – Travel with Care (Last Updated: September 11, 2014)
www.finra.org/investors/alerts/frontier-funds
Investor Alert, Alternative Funds Are Not Your Typical Mutual Funds (Last Updated: June 11, 2013)
www.finra.org/investors/alerts/alternative-funds-are-not-your-typical-mutual-funds
Investor Alert, Duration – What an Interest Rate Hike Could Do to Your Bond Portfolio (Last Updated: February 14, 2013)
www.finra.org/investors/alerts/duration-what-interest-rate-hike-could-do-your-bond-portfolio
Investor Alert, The Grass Isn’t Always Greener—Chasing Return in a Challenging Investment Environment (Last Updated: November 16, 2011)
www.finra.org/investors/alerts/grass-isnt-always-greener
Investor Alert, Class B Mutual Fund Shares: Do They Make the Grade? (Last Updated: October 11, 2008)
www.finra.org/investors/alerts/class-b-mutual-fund-shares-do-they-make-grade
Investor Alert, Understanding Mutual Fund Classes (Last Updated October 6, 2008)
www.finra.org/investors/alerts/understanding-mutual-fund-classes
Investor Alert, Funds of Hedge Funds – Higher Costs and Risks for Higher Potential Returns (Last Updated: October 6, 2008)
www.finra.org/investors/alerts/funds-hedge-funds-higher-costs-and-risks-higher-potential-returns
Investor Alert, Mutual Fund Breakpoints: Are You Owed a Refund? (Last Updated: November 3, 2003)
www.finra.org/investors/alerts/mutual-fund-breakpoints-are-you-owed-refund
Investor Alert, Principal-Protected Funds – Security Has a Price (Last Updated: March 27, 2003)
www.finra.org/investors/alerts/principal-protected-funds-security-has-a-price
Investor Alert, Mutual Fund Breakpoints: A Break Worth Taking (Last Updated: January 14, 2003)
www.finra.org/investors/alerts/mutual-fund-breakpoints-break-worth-taking
Exchange-Traded Funds Rules and Notices
FINRA Rule 2210. Interpretive Guidance Questions and Answers Provision of Related Performance (March 9, 2017)
www.finra.org/industry/finra-rule-2210-questions-and-answers
FINRA Regulatory Notice 09-31, FINRA Reminds Firms of Sales Practice Obligations Relating to Leveraged and Inverse Exchange-Traded Funds (June 2009)
www.finra.org/sites/default/files/NoticeDocument/p118952.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 5
Miscellaneous
FINRA Interpretive Letter, Additional Guidance Regarding the Use of Pre-Inception Index Performance in Institutional Communications (April 22, 2013)
www.finra.org/industry/interpretive-letters/april-22-2013-1200am
SEC Fast Answers, Exchange-Traded Funds (ETFs) (Modified: November 8, 2013)
www.sec.gov/fast-answers/answersetfhtm.html
Podcast, Non-Traditional Exchange-Traded Funds (July 13, 2009)
www.finra.org/industry/podcasts/non-traditional-exchange-traded-funds
FINRA Guidance, Non-Traditional ETFs Frequently Asked Questions
www.finra.org/industry/non-traditional-etf-faq News / Alerts
Investor Bulletin: Exchange-Traded Funds (ETFs) (August 10, 2012)
https://investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-exchange-traded-funds-etfs
Investor Alert, Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors (Last Updated: August 18, 2009)
www.finra.org/investors/alerts/leveraged-and-inverse-etfs-specialized-products-extra-risks-buy-and-hold-investors
News Release, FINRA, SEC Warn Retail Investors About Investing in Leveraged or Inverse ETFs (August 18, 2009) www.finra.org/newsroom/2009/finra-sec-warn-retail-investors-about-investing-leveraged-or-inverse-etfs
Regulatory & Compliance Alert, Exchange-Traded Fund Performance (Fall 2001), Pages 12 & 13
www.finra.org/sites/default/files/RCA/p002372.pdf
Closed-End Funds
FINRA Interpretive Letter A member firm may include related performance information in institutional communications concerning continuously offered closed-end funds, subject to the stated conditions discussed in the letter. (June, 2017)
www.finra.org/industry/interpretive-letters/june-12-2017-1200am
Investment Company Institute, Frequently Asked Questions About Closed-End Funds and Their Use of Leverage (May 2017)
www.ici.org/cef/background/faqs_closed_end
Investment Company Institute, A Guide to Closed-End Funds (May 2017)
www.ici.org/cef/background/bro_g2_ce
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 6
SEC Fast Answers, Closed-End Fund Information (Modified: January 16, 2013)
www.sec.gov/fast-answers/answersmfclosehtm.html
NASD Notice to Members 03-07, NASD Reminds Members of Obligations When Selling Hedge Funds (February 2003)
www.finra.org/sites/default/files/NoticeDocument/p003358.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
JOBS Act Implementation Thursday, October 5 11:30 a.m. – 12:30 p.m.
This session focusses on business and regulatory developments related to the JOBS Act, including recent innovations around how firms conduct business online. FINRA and industry experts discuss how firms can stay in compliance as they conduct public and private offerings under the new rules. Moderator: Ira Gluck Associate Director FINRA Advertising Regulation Panelists: Joan Adler Partner Ellenoff Grossman & Schole LLP Rebecca Knutson Senior Principal Analyst FINRA Advertising Regulation Alissa (Lisa) Robinson Director FINRA Membership Application Program
I. Introductions and Overview of JOBS Act A. Crowdfunding B. Title II C. Title IV D. Title III
II. Regulation Crowdfunding and Title III Offerings
A. Statistics B. Application Process C. Surveillance and Exam Process D. Common Issues and Findings E. Industry Perspective
III. Platforms
A. Statistics B. Private Placement Platform Surveillance Program and Findings C. Ad Reg Interpretive Positions D. Integrated Platforms that offer multiple offering types and through different entities E. Industry Perspective
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
IV. Emerging Developments A. Mobile Applications B. Unified Offerings
V. Wrap-up and Questions
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 3
JOBS Act Implementation Panelist Bios: Moderator: Ira Gluck is Associate Director in FINRA’s Advertising Regulation Department. In this role, he works on policy issues and matters involving complex products and novel regulatory concerns. Mr. Gluck’s previous positions within FINRA included leading the Emerging Regulatory Issues team within the Risk and Strategy Department, as well as heading the Strategic Initiatives Group in FINRA’s Enforcement Department. He also served in various investigative and management roles in the Enforcement and Member Regulation Departments of NASD before its 2007 consolidation with NYSE Member Regulation, which resulted in the formation of FINRA. Mr. Gluck received his bachelor’s degree from the University of Pennsylvania and completed both a master’s degree and M.B.A. at the University of California, Irvine. Panelists: Joan Adler is a partner at Ellenoff Grossman & Schole LLP and she specializes in broker dealer regulation and blue sky compliance. Ms. Adler’s broker dealer practice encompasses FINRA membership applications for broker-dealers and funding portals and a wide range of compliance issues. Ms. Adler also works with public and private companies and underwriters and placement agents on state law registration and exemptions for a variety of public and private offerings. In addition, she has advised investment advisors on exemptions at both the federal and state levels. As a core member of Ellenoff Grossman & Schole’s crowdfunding team, she has been on the forefront of the JOBS Act initiatives guiding all market participants. Ms. Adler has participated on several FINRA panels related to membership and corporate financing issues and has worked proactively with the SEC, FINRA and state regulators to establish guidelines for the JOBS Act initiatives, particularly in regard to funding platforms and portals. Rebecca Knutson is the senior principal analyst in FINRA’s Advertising Regulation Department. She came to NASD/FINRA in 1998 after spending more than a dozen years with a regional broker dealer, Johnston, Lemon & Co. Incorporated, as a registered representative and member of the firm’s municipal trading desk. Ms. Knutson is a CPA, and has an MBA from Johns Hopkins University, with a concentration in information systems management. Lisa Robinson serves as Director of the Membership Application Program (MAP) group at FINRA where she interacts with industry professionals on a wide range of topics including unique, novel, and/or complex products, platforms, large scale restructuring and other material changes in business operations. She offers insight to both internal and external constituents and provides practical solutions to business needs. In addition, Ms. Robinson directs the review of applications submitted by SEC-registered funding portals seeking FINRA membership pursuant to the crowdfunding provisions of Title III of the JOBS Act and SEC’s Regulation Crowdfunding. She also oversees FINRA’s funding portal surveillance and examination program. She often liaises with various regulatory agencies on issues related to Regulation Crowdfunding, and the requirements contained therein, impacting proposed and existing funding portals. Prior to joining MAP, Ms. Robinson was an Associate Director in FINRA’s Member Regulation, Sales Practice Department, where she was responsible for the oversight and execution of the District 10 examination plan, including cycle, cause and branch examinations, for many member firms. She has participated on several FINRA initiatives, most recently FINRA’s Retrospective Review of the MAP rules. She proposed and now administers MAP’s “Triage/Fast track” program, which takes a risk-based approach to processing full FINRA member applications. Ms. Robinson has served as a panelist at numerous industry events on topics such as crowdfunding, examinations, supervisory controls, and ethics. Before joining FINRA, Ms. Robinson worked at a large mutual fund company. She is a Certified Regulatory and Compliance Professional™ (CRCP™) and holds a bachelor’s degree from Nova Southeastern University.
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 1
Panelists
Moderator Ira Gluck, Associate Director, FINRA Advertising Regulation
Panelists Joan Adler, Partner, Ellenoff Grossman & Schole LLPRebecca Knutson, Senior Principal Analyst, FINRA Advertising
RegulationAlissa (Lisa) Robinson, Director, FINRA Membership
Application Program
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Under the “Schedule” icon on the home screen,Select the day,Choose the JOBS Act Implementation session, Click on the polling icon:
2
To Access Polling
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
1. Describe your firma. Funding portalb. Broker-dealerc. Both funding portal and broker-dealerd. None of the above
3
Polling Question 1
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
2. Has your firm engaged in an online Regulation D offering?
a. Yesb. No
4
Polling Question 2
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
3. Has your firm engaged in an online Regulation A offering?
a. Yesb. No
5
Polling Question 3
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
4. Has your firm engaged in a Regulation Crowdfunding offering?
a. Yesb. No
6
Polling Question 4
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
5. Have you personally participated in a crowdfunded endeavor? (Donation or Investment)
a. Yesb. No
7
Polling Question 5
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
CrowdfundingTitle II – Regulation D, Rule 506(c) No dollar limit on offering size or investment amountGeneral solicitationOnly accredited investors – verified or reasonable basis for
confirming status No mandated pre-sale or ongoing disclosures Any company eligible Restricted securities No bad actors
8
Overview of the JOBS Act
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Title IV – Regulation A+ Two Tiers
– $20 million annual limit for Tier 1– $50 million annual limit for Tier 2 (audited financials required)
General solicitation Test the waters material permitted All investors may purchase subject to certain investment limits Offering circular with required disclosure US and Canadian issuers No SPVs, investment companies, or blank check offerings Freely tradable securities
9
Overview of the JOBS Act
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Title III – Regulation Crowdfunding $1,070,000 annual limit Limits on investment based on income and net worth Must be sold through a registered intermediary Offering materials must reside on intermediary website All investors may purchase Form C with required disclosure Annual disclosure Only US issuers No SPVs, investment companies, or blank check offerings Limited resale for 1 year
10
Overview of the JOBS Act
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Statistics Form C filed with the SECApplications filed with FINRAApproved FP membersPending FP-NMA’sExisting BD’s
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Regulation Crowdfunding and Title III Offerings
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Application Process Application Process for FP Members only
– FINRA Regulatory Notice 16-06, Jumpstart Our Business Startups (JOBS) Act Form FP-NMA Standards of Admission Timeframes
– Membership Interview Demo of website
Application Process for Registered BD’s– FINRA Regulatory Notice 16-07, Jumpstart Our Business Startups (JOBS) Act Notification via Firm Gateway vs 1017 Notification
12
Regulation Crowdfunding and Title III Offerings
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Surveillance and Exam ProcessPoint of ContactMonitor websiteReview of 300(c) filings Inspections
– Tailored examination content– On site and off site examinations– Similar process to existing full broker dealer member examination
13
Regulation Crowdfunding and Title III Offerings
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Common Issues and FindingsCommunications with the public Sharing platforms Valuations, Financial informationOff platform transactions Investor education
14
Regulation Crowdfunding and Title III Offerings
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Industry PerspectiveWebsite must comply with Regulation Crowdfunding
requirementsWebsite is core feature of membership approval processBe mindful that target audience includes unaccredited
investors – emphasize education and risk warnings Focus on education, transparency, clarity and ease of
navigation
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Regulation Crowdfunding and Title III Offerings
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
BackgroundPrivate Placement (Title II)
– Prohibition on General Solicitations
Reg A (Title IV)
FINRA Filing RequirementsAdvertisingCorporate Financing
Statistics
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Platforms
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Advertising Regulation Platform ProjectGoals Process Statistics
Common Issues and Findings False or misleading statements. Problematic use of issuer financial forecasts, investor return
projections, IRR. Need for clear and prominent risk disclosure.
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Private Placement (Title II) Platforms
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
6. Does your firm’s website also include deals offered through a non-FINRA registered affiliate?
a. Yesb. No
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Polling Question 6
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Integrated Platforms Import for site to feature info about each deal type and investor
eligibility for investment in each deal typeVisual clarity for each deal typeProminent risk of loss languageUtilize hyperlinks to available SEC guidanceCustomer onboarding
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Platforms
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Unified OfferingsPlatforms that provide the ability to “seamlessly” move from a
fully subscribed Title III offering to an follow-on Regulation D or Regulation A offering
Mobile Applications Funding PortalsBD PlatformsSocial Media aspects
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Emerging Developments
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
JOBS Act Implementation Thursday, October 5 11:30 a.m. – 12:30 p.m. Resources Title II – Rule 506(c)
Final Rule, Eliminating the Prohibition Against General Solicitation and General Advertising in
Rule 506 and Rule 144A Offerings (July 2013)
www.sec.gov/rules/final/2013/33-9415.pdf
Fact Sheet, Eliminating the Prohibition on General Solicitation and General Advertising in Certain Offerings (July 2013)
www.sec.gov/news/press/2013/2013-124-item1.htm
SEC Division of Corporation Finance, Eliminating the Prohibition Against General Solicitation
and General Advertising in Rule 506 and Rule 144A Offerings - A Small Entity Compliance Guide (September 2013)
www.sec.gov/info/smallbus/secg/general-solicitation-small-entity-compliance-guide.htm
SEC Division of Corporation Finance, Securities Act Rules - Compliance and Disclosure
Interpretations (April 2017)
www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm
Title IV – Regulation A
Final Rule, Amendments for Small and Additional Issues Exemptions under the Securities Act -- Regulation A (March 2015)
www.sec.gov/rules/final/2013/33-9415.pdf
Fact Sheet, Regulation A+ (March 2015)
www.sec.gov/news/pressrelease/2015-49.html
Investor Bulletin, Regulation A (July 2015)
www.sec.gov/oiea/investor-alerts-bulletins/ib_regulationa.html
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
FINRA Regulatory Notice 15-32, Regulation A Offerings (September 2015)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-15-32.pdf
SEC Division of Corporation Finance, Amendments to Regulation A: A Small Entity Compliance Guide (May 2016)
www.sec.gov/info/smallbus/secg/regulation-a-amendments-secg.shtml
Title III – Regulation Crowdfunding
Final Rule, Regulation Crowdfunding (October 2015)
www.sec.gov/rules/final/2015/33-9974.pdf
Fact Sheet, Regulation Crowdfunding (October 2015)
www.sec.gov/news/pressrelease/2015-249.html
FINRA Regulatory Notice 16-07, Notification to FINRA in Connection with the JOBS Act (January 2016)
www.finra.org/sites/default/files/Regulatory-Notice-16-07.pdf
SEC Division of Trading and Markets, Regulation Crowdfunding: A Small Entity Compliance Guide for Crowdfunding Intermediaries (May 2016)
www.sec.gov/divisions/marketreg/tmcompliance/cfintermediaryguide.htm
Investor Bulletin, Be Cautious of SAFEs in Crowdfunding (May 2017)
www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-be-cautious-safes-crowdfunding
Investor Alert, Crowdfunding and JOBS Act: What Investors Should Know (May 2017)
www.finra.org/investors/alerts/crowdfunding-and-jobs-act-what-investors-should-know
Funding Portals
FINRA Regulatory Notice 16-06,Funding Portal Rules (January 2016)
www.finra.org/sites/default/files/Regulatory-Notice-16-06.pdf
SEC Division of Trading and Markets, Registration of Funding Portals (January 2017)
www.sec.gov/divisions/marketreg/tmcompliance/fpregistrationguide.htm FINRA, Funding Portals We Regulate
www.finra.org/about/funding-portals-we-regulate
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Advertising Compliance Boot Camp: Selected Topics Thursday, October 5 1:45 p.m. – 2:45 p.m. Designed for new compliance and marketing professionals, FINRA panelists provide insights into the core concepts of social media and digital communications, as well as the basic requirements and frequently raised regulatory compliance questions with respect to communications concerning mutual funds, ETFs and variable insurance products. The panel also features sample advertisements and important do’s and don’ts. Moderator: Pramit Das Associate Director - Technology FINRA Advertising Regulation Panelists: Steven Choi Associate Principal Advertising Analyst FINRA Advertising Regulation Joseph George Associate Director FINRA Advertising Regulation Wayne Louviere Manager FINRA Advertising Regulation
I. Introduction
II. Ad review
III. SEC Rules for Investment Company Communications A. Prospectus offer and money market legends; B. Performance standards; and C. Presentation guidelines. D. Examples of communications.
IV. Variable Insurance Products
A. Performance standards; B. Applicable rules; C. Variable annuity “do’s” and “don’ts;” D. Variable life insurance “do’s” and “don’ts;” and E. Hypothetical illustrations
V. Communications Concerning Options
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
VI. Investment Company Rankings
VII. Investment Analysis Tools
A. Overview; and B. Disclosure
VIII. Social Media and Digital Communications
A. Personal versus business use; B. Static versus interactive communications; C. Adoption and entanglement; and D. Applicable FINRA Regulatory Notices
IX. Q&A and Wrap-up
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 3
Advertising Compliance Boot Camp: Selected Topics Panelist Bios: Moderator: Pramit Das is Associate Director-Technology of FINRA’s Advertising Regulation Department. In this role, his responsibilities include managing a filings review group; assisting with administration of the filings review program; developing and maintaining the department’s technology needs; providing education to members, FINRA staff and other regulatory staff; and participating in certain rule amendment and rulemaking projects as necessary. He served in the same role at NASD before its 2007 consolidation with NYSE Member Regulation. Prior to joining NASD in 1994, Mr. Das worked for Metropolitan Life Insurance Company and Arthur Andersen & Co. He holds an MBA in Finance from the University of Maryland, College Park, and an MA in Financial Economics from Clemson University, Clemson, South Carolina. He was also Series 7 and 63 registered. Panelists: Steven Choi is Associate Principal Analyst in FINRA’s Advertising Regulation Department. Prior to joining FINRA/NASD in 2006, he worked in the Private Client Management Group at Legg Mason, and as a Financial Advisor in the Global Private Client Group at Merrill Lynch. Mr. Choi holds a bachelor’s degree in Art History from Williams College. Joseph George is Associate Director in FINRA’s Advertising Regulation Department, where he supervises analysts who review communications with the public for compliance with applicable rules. He has been with the department for more than 20 years and has spoken on panels at Advertising Regulation Department Conferences over the past 15 years. Prior to joining FINRA, he worked for New York Life as a registered representative and was a project manager with Computer Sciences Corporation. Mr. George holds a bachelor’s degree in economics from the University of Maryland. Wayne L. Louviere is a manager in the FINRA Advertising Regulation Department, and supervises the activity of a group of analysts that review sales communications filed by member firms. Mr. Louviere joined the Advertising Regulation Department in 2000. Prior to that time, he was a registered representative, after having served 20 years in the U.S. Navy. Mr. Louviere has a bachelor’s degree in business management – finance and a master’s of business administration from the University of Maryland.
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Advertising Compliance Boot Camp:
Selected Topics
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Moderator
Pramit Das, Associate Director-Technology, FINRA Advertising
Regulation
Panelists
Steven Choi, Associate Principal Advertising Analyst, FINRA
Advertising Regulation
Joseph George, Associate Director, FINRA Advertising
Regulation
Wayne Louviere, Manager, FINRA Advertising Regulation
1
Panelists
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Examples of FINRA Rule 2210 content violations
Applicable SEC Rules (disclosures and performance standards)
Standards applicable to variable insurance products
Guidance pertaining to options communications
Presentation of investment company rankings
Key points regarding investment analysis tools
Core concepts of social media and digital communications
2
Agenda
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 3
These Investments Are Sure to Soar!
The Rocket Technology Fund Provides Opportunities for
Guaranteed High Income and Low Volatility!
By investing in the Rocket Technology Fund, you gain:
• Instant access to the $$$technology$$$ sector,
which provides growth at an unprecedented rate!
• Security, stability, and peace of mind
• 100% exposure to market
• Focus on generating higher alpha
Call 1-888-ROCKETS to request a prospectus for the Rocket Technology Fund. Consider the investment objectives,
risks, charges, and expenses of the Fund carefully before investing. The prospectus contains this and other
information about the Fund. Read the prospectus carefully before investing.
It is important that you carefully read the agreements and disclosures that Rocket Technology provides to you about products offered. While Rocket
Technology strives to ensure that these materials clearly describe the nature of the products offered, please contact Rocket Technology if you need
clarification. Investing in a single-sector mutual fund involves greater risk than investing in a more diversified fund. The fund may invest up to 35% of
its assets in securities of non-U.S. issuers that present risks not associated with investing solely in the United States. In addition, Rocket Distributors,
its affiliates, and its employees are not in the business of providing tax or legal advice. Please seek such advice based on your particular
circumstances from an independent advisor.
Rocket Fund Distributors Member FINRA
Invest in the Rocket Technology Fund and your portfolio value will SKYROCKET!!
Promissory claim
Exaggerated,
promissory assertions
Lacking basis,
balance, clarity
Placement of risk disclosure in legend inhibits understanding
Promissory claim
Unwarranted
Exaggerated claim
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
SEC Rule 482 governs communications used prior to delivery of the prospectus.
SEC Rule 34b-1 governs communications used after delivery of the prospectus.
SEC Rule 135a applies to generic communications about investment company securities and therefore, may not refer to a particular fund or security. Such communications may:
describe services/benefits offered by a sponsor/complex;
include details about the distributor; and
invite readers to request further information.
4
SEC Rules – Investment Company Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Prospectus offer – Include all four elements
Advise investors to consider objectives, risk, and charges and expenses carefully.
Explain that the prospectus or summary prospectus contains this and other information about the investment company.
Identify a source for obtaining the prospectus.
Inform investors to carefully read the prospectus before investing.
Money market legend
For each money market fund named, include the appropriate legend.
Each legend must be clearly associated with the fund to which it applies.
5
SEC Rule 482 Disclosures
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Investors should carefully consider the fund’s investment objectives, risks,
charges and expenses. Contact Maize Funds Dist. (800-222-12234) or visit
www.maize.com/prospectus for a prospectus containing this and other
information about the fund. Read it carefully before investing.
Fund Name Overview
Maize Institutional Money Fund* Seeks to obtain as high a level of current income as is consistent with the preservation of principal and liquidity
within the limitations prescribed for the fund.
Government Maize Money Market Fund ** Seeks as high a level of current income as is consistent with preservation of capital and liquidity.
A Maize Growth Fund Seeks growth of capital over the long term. Normally investing in common stocks of well-known and established
companies.
International Maize ETF The ETF seeks to track the investment results of the MSCI ACWI ex USA IMI index composed of large-, mid-
and small-capitalization non-U.S. equities.
Small Maize Fund Seeks capital appreciation. Investing in small market capitalizations companies that Maize believes have above-
average growth potential
* You could lose money by investing in the Fund. Because the share price of the Fund will fluctuate, when you sell your shares they may be
worth more or less than what you originally paid for them. The Fund may impose a fee upon sale of your shares or may temporarily suspend
your ability to sell shares if the Fund's liquidity falls below required minimums because of market conditions or other factors. An investment in
the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund's sponsor has
no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund
at any time.
** You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it
cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. The Fund's sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that
the sponsor will provide financial support to the Fund at any time. Distributed by Maize Securities LLC. Member SIPC
Maize Funds have cultivated five fields of investment options that have the potential to provide a diversified harvest for every investor.
6
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Performance – Eight elements Performance data represents past performance;
Past performance does not guarantee future results;
Current performance may be lower or higher than performance data quoted;
Investment return and principal value will fluctuate;
When redeemed, shares may be worth more or less than their original cost;
Identify a source to obtain performance current to the most recent month-end;
Disclose, as applicable, maximum amount of sales load or other nonrecurring fee; and
If load or fee not reflected, load or fee would reduce performance.
Note: Requirements for Expense Ratio – FINRA Rule 2210(d)(5)
7
SEC Rule 482 Disclosures
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Presentation standards
Five requirements:
– Legibility
– Type size
– Type style
– Prominence
– Proximity (only for performance disclosures)
Specialized disclosure requirements for electronic media,
radio, or television advertisements
8
SEC Rule 482 Disclosures
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Performance standards
Non-money market funds:
– Current yield
– Taxable-equivalent yield
– Average annual total return (1-, 5-, and 10-year or since inception periods and current to most recent calendar quarter ended)
– After-tax return
– Other performance measures must reflect all elements of return
Money market funds:
– Current yield
– Total return
9
SEC Rule 482 Performance
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Applies to material preceded or accompanied by a current prospectus
Standards are consistent with those of SEC Rule 482
Performance
Performance disclosure
Presentation standards
For money market funds, include the applicable money market fund disclosure
May include non-standardized yield
10
SEC Rule 34b-1
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 11
Objective
The Fund seeks total return.
Benefit
Provides international diversification to the stock portion of an investor’s portfolio.
Total Returns as of 9/30/2017
Share Class 1 Year 5 Year 10 Year Since Inception
A (without sales charges) 14.28% 8.07% 3.99% 5.93%
A (with 5.5% sales charges) 8.00% 6.85% 3.40% 5.48%
TDG International Index 6.40% 7.80% 4.50%
Performance data shown represents past performance and is no guarantee of future results.
Investment return and principal value will fluctuate so that an investor’s shares, when redeemed,
may be worth more or less than their original cost. Current performance may be lower or higher
than that quoted. To view current to the most recent month-end performance, visit
LouviereFunds.com.
Expense Ratio1 : Gross - 2.00% Net - 1.25%
1The Advisor has contractually waived a portion of their fees/expenses until 12/31/2020. Performance would have been lower if
waivers did not apply.
Fund Fact Sheet
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 12
Objective
The Fund seeks to track the investment results
of the DKJG U.S. Healthcare 100 Index.
Benefit
Provides sector diversification to the U.S. stock
portion of an investor’s portfolio.
Total Returns as of 9/30/2017
1 Year 5 Year 10 Year Since Inception
NAV Return -2.31% 9.03% 8.95% 10.01%
Market Return -2.57% 8.78% 8.68% 9.87%
DKJG Healthcare 100 Index -3.28% 9.16% 8.12%
Expense Ratio: 0.084%
NAV Return represents the closing price of underlying securities.
Market Return is calculated using the price which investors buy and sell ETF shares in the market. The market returns in
the table are based upon the midpoint of the bid/ask spread at 4:00pm EST, and do not represent the returns you would
received if you traded shares at other times.
Performance data shown represents past performance and is no guarantee of future results.
Investment return and principal value will fluctuate so that an investor’s shares, when redeemed,
may be worth more or less than their original cost. Current performance may be lower or higher
than that quoted. To view current to the most recent month-end performance, visit
GeorgeFunds.com.
Fund Fact Sheet
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Performance SEC Rule 482 performance standards do not apply.
FINRA Rule 2210 applies:
– Identify what types of fees and expenses apply to the fund.
– Disclose which fees and expenses have been deducted and which have not been deducted.
– If any fees have not been deducted, disclose that had they been deducted, the performance would have been lower.
Distribution rates Disclose how the rate was calculated.
Affirmatively disclose whether the rate reflects return of principal or other non-income sources.
13
Closed-End Funds
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Contract Inception: March 1, 2013Separate Account Established: January 12, 2005
Average Annual Total Returns Through September 30, 2017(performance reflects maximum contingent deferred sales charge)
Performance returns reflect an initial contract value of $1,000. The performance data quoted represents past performance of the Sub-Accounts. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worthmore or less than original cost. For performance information current to the most recent month end, please call 1-800-888-8888. Past performance does not guarantee future results. Current performance may be lower or higher than the performance data quoted.Performance displayed is net of annual administrative, investment management, and mortality and expenses fees, as well as a declining contingent deferred sales charge (CDSC) of 8%, 7%, 6%, 5%, 4%, 3%, 2%, 1%, 0% over 9 years. The underlying Fund may incur a $30 per year annual contract charge. Please see the latest prospectus for detailed information on fees and charges.There is a 10% federal penalty tax on certain withdrawals of earnings prior to age 59 ½. Earnings are subject to ordinary income tax upon withdrawal.*Since inception returns are provided for portfolios that do not have at least 10 years of performance history as of the date they were included in the separate account.
Choi Securities LLC, Member FINRA14
Investment Option Name
Added to
Separate
Account1-year 5-year 10-year Since Inception*
Large Cap Growth 1/12/2005 6.56% -3.30% -7.02% -
Mid Cap Growth 12/31/2008 10.03% -1.82% - -7.84%
Int’l Growth 12/31/2008 3.73% 1.08% - -0.73%
Small Cap Growth 5/2/2014 15.25% - - 3.51%
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
SEC Rule 482 performance standards apply. Average annual total returns.
Current to the most recent calendar quarter ended.
Must be net of all recurring fees and expenses (e.g., mortality and expense risk charges, annual administrative fees, expenses of the investment options). Annual contract charges can be deducted as a percentage of the average
issued contract value.
Must be net of all non-recurring fees (e.g., sales loads and contingent deferred sales charges).
Keyed off the inception date of the separate account, even if it predates the date of the inception of the contract.
15
Variable Annuity – Historical Performance
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Typically appears in material preceded or accompanied by a current prospectus for the VLI contract and its underlying accounts.
Performance standards of SEC Rule 34b-1 do not apply.
General standards of FINRA Rule 2210 do apply
Performance must reflect, at a minimum, the deduction of all fees and charges applicable at the investment option level.
Identify the fees and charges deducted; identify the fees and charges not deducted; and disclose that the performance would have been significantly lower if all fees and charges had been deducted.
If applicable, include a statement suggesting that investors obtain a personalized performance illustration.
16
Variable Life Insurance – Historical Performance
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
FINRA Rule 2210
FINRA Rule 2211 (Communications With the Public about Variable Life Insurance and Variable Annuities)
FINRA Rule 2212 (Use of Investment Companies Rankings in Retail Communications)
FINRA Rule 2214 (Requirements for the Use of Investment Analysis Tools)
SEC Rule 482
SEC Rule 34b-1
SEC Rule 135a
17
Variable Insurance Products – Applicable Rules
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Identify the product being offered as a variable annuity.
Address risks, fees, tax liabilities, and potential penalties, as needed.
Disclose the long-term nature of a variable annuity.
Discuss riders in a fair and balanced manner, clearly explain how they work,
and adequately address fees and charges.
Ensure material promoting a rider provides a sound basis to evaluate the VA.
Explain the limitations of any guarantees mentioned and indicate that they
are based on the claims-paying ability of the issuing company.
Reference both the VA contract prospectus and the underlying funds
prospectuses, as appropriate, within the prospectus offering statements.
18
Variable Annuity Communications – Do’s
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Promote a VA based solely on a specific feature like a rider or bonus credit.
Imply that a VA is liquid or appropriate for a short-term investment.
Represent that a VA’s investment options are mutual funds.
Imply that the issuer’s ratings apply to the investment options.
Highlight the fixed account’s current rate of return in lieu of a complete discussion of the VA’s investment options.
19
Variable Annuity Communications – Don’ts
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Identify the product as variable life insurance.
Balance any discussion of VLI investment features with a discussion of the
insurance component.
Balance a discussion of benefits with a discussion of costs and risks.
Accompany discussions of guarantees with disclosure that they are subject
to the claims-paying ability of the issuing life insurance company.
Ensure comparisons to other products are fair, balanced, and complete.
Reference both the VLI policy prospectus and the underlying funds
prospectuses, as appropriate, within the prospectus offering statements.
Accompany discussions regarding access to investment values with an
explanation of the negative impact of loans and withdrawals.
20
Variable Life Insurance Communications – Do’s
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Imply that VLI is liquid or appropriate for short-term investment.
Overemphasize the growth potential of VLI policies and the income that can be generated from such contracts.
Represent that a VLI’s investment options are mutual funds.
Imply that the issuer’s rating applies to the performance of the underlying investment options.
Highlight the fixed account’s rate of return in lieu of a complete discussion of all investment options.
Promote riders without providing a sound basis to evaluate the VLI policy.
21
Variable Life Insurance Communications – Don’ts
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Disclose prominently that the illustration is hypothetical, is intended to show how
the performance of underlying investment accounts could affect the policy cash
value and death benefit, and does not predict or project future performance.
Use an assumed gross rate of return (maximum 12%) that is reasonable in light of
market conditions; must disclose both the gross and the resulting net rates used.
Include an assumed gross rate of return of 0% and disclose the 0% gross and
resulting net rates used.
Disclose and deduct the maximum guaranteed charges for each assumed rate of
return.
Reflect an arithmetic average of all expenses of investment options.
Depict year-by-year account values.
If the illustration exceeds ten years, then it may depict account values for year 1
through 10, then for every five years beyond the 10th year, and for the final year.
22
Variable Life Insurance Hypothetical Illustrations
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Subject to FINRA Rule 2220.
Principal approval: Retail communications must be approved in advance.
Institutional communications and correspondence in accordance with the firm’s supervisory procedures.
Communications used prior to delivery of the Options Disclosure Document (ODD): Retail communications must be filed 10 calendar days prior to use and require FINRA
approval prior to use.
Must provide a source for obtaining a copy of the ODD.
Must be limited to general descriptions of the options being discussed.
Must not contain recommendations, performance, or names of specific securities.
Communications used with the ODD may be filed voluntarily.
23
Communications Concerning Options
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 24
DKIM International Value Fund (DKIMV)
DKJP Distributors, LLC Member FINRA
Past performance is no guarantee of future results. SC Rankings — SC Analytical Services,
Inc. is an independent publisher of mutual fund rankings, records rankings for these and other
DKIM Funds for one-year, three-year, five-year, and ten-year total returns periods. SC Analytical
Services compares mutual funds within a universe of funds with similar investment objectives,
including dividend reinvestment. SC Rankings are based on risk-adjusted at net asset value and
do not reflect sales charges. SC Rankings do not imply that the fund had a high total return.
Name of the
ranking categoryNumber of investment
companies in the category
Name of the
ranking entity
Length of
the period
Ending date
of the period
Criteria of the ranking
An international equity fund investing in stocks that has competitive
marks among its peers.
DKIMV 1-Year 5-Year 10-YearAs of 09/30/2017 17 out of 285 20 out of 254 12 out of 186
Based on risk-adjusted return, the International Equity Fund placed within the highest 10% of funds
in the 1-, 5-, and 10-year rankings by SC Ranking Services in the Foreign Large Value Category.
FINRA Rule 2212: Investment Company Rankings
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Subject to FINRA Rule 2214.
Definition:
Interactive;
Produces simulations and statistical analyses; and
Presents the likelihood of various investment outcomes if certain
investments or strategies are undertaken.
Template of report is no longer a required filing. However,
access to the tool must be provided at FINRA’s request.
25
Investment Analysis Tools – Overview
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Investment Analysis Tool retail communications (except incidental references) must include required disclosures: Describe the criteria and methodology used, including the investment analysis
tool’s limitations and key assumptions;
Explain that results may vary with each use and over time;
If applicable, describe the universe of investments considered, how the investments are selected, explain if and why some securities are favored, and state that other investments may be similar or superior to those being analyzed; and,
Clearly show the hypothetical nature of the results which do not reflect actual results and are not guarantees of future results.
These disclosures required by FINRA Rule 2214(c), should be clear, prominent, and written in narrative form.
26
Investment Analysis Tools – Required Disclosures
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Social Media: Core Concepts
Personal vs. business use
Static vs. interactive communications
Adoption and entanglement
• Recordkeeping
• Supervision
• Third-party content
27
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 28
Social Media: FINRA Regulatory Notices
In addition: SEC IM Guidance Update 2013-01 – March 2013
10-06: Guidance on Blogs and Social Networking Web Sites (January 2010)
▪ Recordkeeping responsibilities
▪ Suitability responsibilities
▪ Types of interactive electronic forums
▪ Supervision of social media sites
▪ Third-party posts
11-39: Social Media Websites and the Use of Personal Devices for Business Communications (August 2011)
▪ Recordkeeping
▪ Supervision
▪ Links to third-party sites
▪ Data feed
17-18: Guidance on Social Networking Websites and Business Communication (April 2017)
▪ Text messaging
▪ Personal communications
▪ Hyperlinks and sharing
▪ Native advertising
▪ Testimonials and endorsements
▪ Correction of third-party content
▪ BrokerCheck
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Understand what rules and standards apply to the specific product being promoted.
Ensure your communications are fair and balanced.
Don’t omit material information.
Accompany non-standardized performance with standardized performance.
Be mindful of the proximity requirement for performance disclosure.
Clearly identify a variable product as either an annuity or life insurance.
Remember that the VA performance inception date is keyed off the separate account.
Prior approval from FINRA is required for options retail communications not used with
the ODD.
Understand your firm’s responsibility with respect to social media and digital
communications.
29
Important Take-Aways
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Advertising Compliance Bootcamp
Selected Topics
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Questions and Answers
31
Advertising Compliance Bootcamp: Selected Topics
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Current Trends and Topics for Investment Company Communications Thursday, October 5 1:45 p.m. - 2:45 p.m. Join FINRA staff and industry panelists as they discuss advertising compliance issues concerning registered investment companies, including mutual funds, ETFs and closed-end funds. The panel includes discussions on current trends, changes to FINRA Rule 2210 and recent regulatory interpretations, including related performance. The panelists also share tips to strengthen the marketing and compliance relationship when developing compliant communications.
Moderator: Derek Ashworth Associate Director FINRA Advertising Regulation Panelists: Darrian Hopkins Director and Compliance Officer TIAA Lynn Lawson Associate Manager FINRA Advertising Regulation Danielle Nicholson Smith Vice President and Legal Counsel – U.S. Communications and Digital Services T. Rowe Price Investments Services, Inc.
I. Introduction
II. Discussion of Advertising Review Process A. T. Rowe Price Process B. TIAA Process C. Advertising Department Process
III. Recent Regulatory Updates Affecting Investment Companies
A. Rule 2210 Amendments (Exemptions from filing requirement) B. Related Performance C. SEC – Money Market Fund Disclosure (effective October 2016) D. DOL Rule
IV. Themes in Communications – What are investment company communications discussing?
A. Common discussions (e.g., active vs. passive debate, hunt for yield, new investment strategies)
B. Concerns (e.g., comparisons, accurate descriptions, risks)
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
C. Product space (e.g., mutual funds, exchange-traded funds, closed-end interval funds, digital investment advice)
D. Risk Disclosure for Current Market Conditions (SEC Guidance Update, March, 2016)
V. Communication Mediums A. Successes and challenges of creating communications for different mediums
(disclosure) B. Social media parameters (how do firms determine what to use)
VI. Strengthening the Marketing, Legal and Compliance Relationship
A. T. Rowe Price – Agile process B. TIAA – Collaborative process C. FINRA – How FINRA can contribute
VII. Q&A and Wrap Up
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 3
Current Trends and Topics for Investment Company Communications Panelist Bios: Moderator: Derek Ashworth is Associate Director in FINRA’s Advertising Regulation Department. The department protects investors by ensuring broker-dealer members of FINRA use communications that are fair, balanced and not misleading. Mr. Ashworth’s primary responsibility is managing staff members dedicated to the routine review of member firm communications. Mr. Ashworth also participates in the Department’s outreach efforts including serving as a panelist in prior FINRA conferences and presenting during selected FINRA Compliance Boot Camps. He has been with the Advertising Regulation Department for 17 years. Prior to joining FINRA, Mr. Ashworth was a program manager for a business and education partnership at Nova Southeastern University in Fort Lauderdale, FL. Previous to this role, he was a specialty banker and registered representative with First Union in West Palm Beach, FL. Mr. Ashworth received his bachelor’s degree from Stetson University and completed his M.B.A. at Johns Hopkins University. Panelists: Darrian Hopkins is Director and Compliance Officer responsible for leading TIAA’s Marketing Compliance and Oversight Program. This team leads all oversight activities for TIAA’s marketing review program to ensure compliance with applicable advertising laws, rules and regulations. Mr. Hopkins joined TIAA in February 2006 from FINRA, where he was an Associate Supervisor in the Advertising Regulation Department. Mr. Hopkins spent nine and a half years in the Department and, prior to that, he spent five years with the U.S. Securities and Exchange Commission also in Washington, DC. While at FINRA, Mr. Hopkins was a frequent speaker on various panels at FINRA’s annual Advertising Regulation Conference. Mr. Hopkins is a graduate of the University of South Carolina. Lynn Lawson is an Associate Manager in FINRA’s Advertising Regulation Department. Her primary responsibilities include training and mentoring assigned staff and conducting reviews of complex communications for compliance with applicable advertising rules. She is also the Department’s Training Committee Coordinator and has been a speaker at FINRA’s Advertising Regulation Department annual conference since 2011. Prior to joining FINRA, she worked as a contract attorney and in the financial services industry. She holds Series 7, 24 and 63 registrations. Ms. Lawson is also a graduate from The Catholic University of America, Columbus School of Law and earned a B.A. in English from Spelman College. She is also holds the designation of a Certified Regulatory and Compliance Professional from the FINRA Institute at Wharton and is a member of the District of Columbia Bar. Danielle Nicholson Smith is Legal Counsel for U.S. Communications and Digital Services and Vice President of T. Rowe Price Investment Services, Inc. She joined T. Rowe Price in 1992. Most of her 25 years in the industry have been spent on the application of FINRA and SEC Advertising Rules to communications with the public. Ms. Smith oversaw the principal review and filing with FINRA of all of the firm’s mutual fund advertising and sales materials for over 15 years. She serves on the Advertising Rules Committee of the Investment Company Institute and has been a speaker on regulation of social media at the FINRA annual conference. Ms. Smith holds a bachelor’s degree from Smith College and a law degree from the University of Maryland School of Law.
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Current Trends and Topics for
Investment Company Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Moderator
Derek Ashworth, Associate Director, FINRA Advertising
Regulation
Panelists
Darrian Hopkins, Director and Compliance Officer, TIAA
Lynn Lawson, Associate Manager, FINRA Advertising Regulation
Danielle Nicholson Smith, Vice President and Legal Counsel -
U.S. Communications and Digital Services, T. Rowe Price
Investments Services, Inc.
1
Panelists
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Under the “Schedule” icon on the home screen,
Select the day,
Choose the Current Trends and Topics for Investment
Company Communications session,
Click on the polling icon:
2
To Access Polling
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Segment Topics
Advertising Review Process
Regulatory Updates Affecting Investment Company Communications
Trends in Investment Company Communications
Creating Communications for Different Media
Strengthening the Marketing, Legal and Compliance Relationship
Questions & Answers
3
Agenda
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Understanding the Communications Review
Procedure
TIAA
T. Rowe Price Investment Services, Inc.
FINRA
4
Advertising Review Process
Communication AnalysisComplies or
Needs Revisions
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Tips for Filing Submissions with FINRA
Indicate if the communication is promoting a new product or represents a new marketing campaign
Explain how the communication will be used and describe necessary context
Provide supporting documents (e.g., prospectus)
Clarify if the communication will be preceded or accompanied by a prospectus
Indicate if previous versions of the communication have been filed
Identify the landing page or relevant ‘linked’ content for digital communications
5
Advertising Review Process
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Rule 2210 Amendments – Filing Exclusions
Investment company shareholder reports
Generic investment company communications
Templates
– Expanded to include non-predictive narrative content
Backup material for investment company performance
rankings & comparisons
6
Regulatory Updates Affecting Investment Company
Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
1. What filing exclusion has had the most impact on
your firm’s communications?
a. Investment company shareholder reports
b. Generic investment company communications
c. Templates (expansion to include non-predictive narrative content)
d. Back-up material for investment company performance rankings &
comparisons
e. All of the above
7
Polling Question 1
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Guidance for Related Performance in Institutional
Communications
Use of related performance for continuously offered closed-end
funds is permitted – consistent with conditions in June 9, 2017
Interpretive Letter
Related performance can be net of fees of the subject mutual fund
(Interpretive Guidance Question, March 9, 2017)
Related performance guidance can apply to actively managed
ETFs (Interpretive Guidance Question, March 9, 2017)
8
Regulatory Updates Affecting Investment Company
Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Money Market Fund Reforms (October, 2016)
Amendments to the disclosure statements that must appear in
money market fund communications
DOL Fiduciary Rule
Firm preparation and response
9
Regulatory Updates Affecting Investment Company
Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Themes in Discussions
Great Debate: Active or Passive Management
Hunt for Yield
Benefits of Multi-factor Strategies
Protection from Managed Volatility Strategies
10
Trends in Investment Company Communications
Products
Trends
Themes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Potential Discussion Concerns
Fair and balanced comparisons
Accurate description of investment or strategy
Explanation of risks
Consideration of the audience
11
Trends in Investment Company Communications
Products
Trends
Themes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Product Considerations
Closed-end funds
– Interval funds
Alternative funds
– Floating-rate loan funds
–Unconstrained bond funds
– Long/short funds
–Multi-currency funds
Digital investment advice tools
12
Trends in Investment Company Communications
Products
Trends
Themes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Disclosure Practices
Consider market conditions and the impact on fund risks
Assess whether current risk disclosure is adequate
13
Trends in Investment Company Communications
Products
Trends
Themes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Challenges of Responsive Web Design Technology
Web content used in other device formats (smartphones or
tablets)
Presentation of disclosure (clarity, proximity and prominence)
Considerations for Social Media Presence
Identifying audience and channel(s)
Incorporating compliance in strategy
14
Creating Communications for Different Media
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Implementing Effective Practices
15
Strengthening the Marketing, Legal and Compliance
Relationship
Marketing
ComplianceLegal
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
2. How would you characterize the collaboration
including responsiveness between the compliance,
marketing and legal teams/staff at your firm when
creating communications?
a. Extremely responsive
b. Very responsive
c. Somewhat responsive
d. Not so responsive
e. Not at all responsive
16
Polling Question 2
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Implementing Effective Practices
Collaboration
Agility
FINRA feedback
17
Strengthening the Marketing, Legal and Compliance
Relationship
Marketing
ComplianceLegal
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Current Trends and Topics for
Investment Company Communications
Questions & Answers
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Current Trends and Topics for Investment Company Communications Thursday, October 5 1:45 p.m. – 2:45 p.m. Resources General Guidance (Communications With the Public) Notices
FINRA Regulatory Notice 17-18, Guidance on Social Networking Websites and Business Communications (April 2017)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-17-18.pdf
FINRA Regulatory Notice 16-41, SEC Approves Amendments to Rules Governing Communications With the Public (October 2016)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-16-41.pdf
FINRA Regulatory Notice 15-50, SEC Approves Rule Requiring Members’ Websites to Include a Readily Apparent Reference and Hyperlink to BrokerCheck (December, 2015)
www.finra.org/sites/default/files/Notice_Regulatory_15-50.pdf
FINRA Regulatory Notice 15-17, Guidance on Rules Governing Communications With the Public (May 2015)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory_Notice_15-17.pdf
FINRA Regulatory Notice 15-16, FINRA Requests Comment on Proposed Amendments to Rules Governing Communications With the Public (May 2015)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory_Notice_15-16.pdf
FINRA Regulatory Notice 13-03, FINRA Provides Guidance on New Rules Governing Communications With the Public (January 2013)
www.finra.org/sites/default/files/NoticeDocument/p197615.pdf
FINRA Regulatory Notice 12-29, SEC Approves New Rules Governing Communications With the Public – Effective Date: February 4, 2013 (June 2012)
www.finra.org/sites/default/files/NoticeDocument/p127014.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
FINRA Regulatory Notice 11-49, Advertising Regulation: FINRA Provides Guidance on Advertising Regulation Issues (October 2011)
www.finra.org/sites/default/files/NoticeDocument/p124925.pdf
FINRA Regulatory Notice 11-39, Guidance on Social Networking Websites and Business Communications (August 2011)
www.finra.org/sites/default/files/NoticeDocument/p124186.pdf
FINRA Regulatory Notice 10-06, Guidance on Blogs and Social Networking Web Sites (January 2010)
www.finra.org/sites/default/files/NoticeDocument/p120779.pdf
Miscellaneous
Podcast, Communications with the Public Rule Amendments (January 9, 2017)
www.finra.org/industry/podcasts/communications-public-rule-amendments
Podcast, Communications With the Public Consolidated Rule – Part 2 (February 26, 2013)
www.finra.org/industry/podcasts/communications-public-consolidated-rule-%e2%80%93-part-2
Podcast, Communications with the Public Consolidated Rule – Part 1 (February 12, 2013)
www.finra.org/industry/podcasts/communications-public-consolidated-rule-%e2%80%93-part-1
Advertising Regulation Frequently Asked Questions (FAQ) Frequently asked questions related to advertising regulation (January 8, 2017)
www.finra.org/industry/issues/faq-advertising
FINRA Information Notice Use of FINRA Logo (January 2016)
www.finra.org/sites/default/files/notice_doc_file_ref/Information-Notice_010816.pdf
Mutual Funds Rules and Notices
FINRA Rule 2210. Interpretive Guidance Questions and Answers Provision of Related Performance (March 9, 2017)
www.finra.org/industry/finra-rule-2210-questions-and-answers
FINRA Regulatory Notice 08-82, FINRA Reminds Firms of Their Sales Practice Obligations with Regard to Cash Alternatives (December 2008)
www.finra.org/sites/default/files/NoticeDocument/p117559.pdf
FINRA Regulatory Notice 08-81, FINRA Reminds Firms of Their Sales Practice Obligations with Regard to the Sale of Securities in a High Yield Environment (December 2008)
www.finra.org/sites/default/files/NoticeDocument/p117558.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 3
NASD Notice to Members 06-48, SEC Approves Amendments to NASD Rules 2210 and 2211 to Require Disclosure of Fees and Expenses in Mutual Fund Performance Sales Material (September 2006)
www.finra.org/sites/default/files/NoticeDocument/p017302.pdf
NASD Notice to Members 06-05, SEC Approves Permanent Rules Concerning Bond Mutual Fund Volatility Ratings – Effective Date: December 27, 2005 (January 2006)
www.finra.org/sites/default/files/NoticeDocument/p015873.pdf
NASD Notice to Members 04-86, Investment Analysis Tools (November 2004)
www.finra.org/sites/default/files/NoticeDocument/p012413.pdf
NASD Notice to Members 00-21, NASD Regulation Reminds Members of Their Responsibilities When Advertising Recent Mutual Fund Performance (April 2000)
www.finra.org/sites/default/files/NoticeDocument/p004122.pdf
NASD Notice to Members 98-107, NASD Reminds Members Of Their Obligations To Disclose Mutual Fund Fees (December 1998)
www.finra.org/sites/default/files/NoticeDocument/p004929.pdf
Miscellaneous
SEC Guidance Update, Fund Disclosure Reflecting Risks Related to Current Market Conditions No. 2016-02 (March 2016)
www.sec.gov/investment/im-guidance-2016-02.pdf
FINRA Interpretive Letter, The use of related performance information in institutional communications, subject to specific conditions, is consistent with the applicable standards of FINRA Rule 2210. (May, 2015)
www.finra.org/industry/interpretive-letters/may-12-2015-1200am
Podcast, Cash Alternatives (March 16, 2009)
www.finra.org/industry/podcasts/cash-alternatives
Regulatory & Compliance Alert, Inaccurate Performance Graphs Result in Formal Action (Summer 2000), Page 9
www.finra.org/sites/default/files/RCA/p002377.pdf
Regulatory & Compliance Alert, Sudden Performance Changes May Require More Information (Summer 1999), Page 16
www.finra.org/sites/default/files/RCA/p002381.pdf
Investor Alerts
Investor Alert, Updated: Duration—What an Interest Rate Hike Could Do to Your Bond Portfolio (March 6, 2017)
www.finra.org/investors/alerts/duration-what-interest-rate-hike-could-do-your-bond-portfolio
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 4
Investor Alert, Frontier Funds – Travel with Care (Last Updated: September 11, 2014)
www.finra.org/investors/alerts/frontier-funds
Investor Alert, Alternative Funds Are Not Your Typical Mutual Funds (Last Updated: June 11, 2013)
www.finra.org/investors/alerts/alternative-funds-are-not-your-typical-mutual-funds
Investor Alert, Duration – What an Interest Rate Hike Could Do to Your Bond Portfolio (Last Updated: February 14, 2013)
www.finra.org/investors/alerts/duration-what-interest-rate-hike-could-do-your-bond-portfolio
Investor Alert, The Grass Isn’t Always Greener—Chasing Return in a Challenging Investment Environment (Last Updated: November 16, 2011)
www.finra.org/investors/alerts/grass-isnt-always-greener
Investor Alert, Class B Mutual Fund Shares: Do They Make the Grade? (Last Updated: October 11, 2008)
www.finra.org/investors/alerts/class-b-mutual-fund-shares-do-they-make-grade
Investor Alert, Understanding Mutual Fund Classes (Last Updated October 6, 2008)
www.finra.org/investors/alerts/understanding-mutual-fund-classes
Investor Alert, Funds of Hedge Funds – Higher Costs and Risks for Higher Potential Returns (Last Updated: October 6, 2008)
www.finra.org/investors/alerts/funds-hedge-funds-higher-costs-and-risks-higher-potential-returns
Investor Alert, Mutual Fund Breakpoints: Are You Owed a Refund? (Last Updated: November 3, 2003)
www.finra.org/investors/alerts/mutual-fund-breakpoints-are-you-owed-refund
Investor Alert, Principal-Protected Funds – Security Has a Price (Last Updated: March 27, 2003)
www.finra.org/investors/alerts/principal-protected-funds-security-has-a-price
Investor Alert, Mutual Fund Breakpoints: A Break Worth Taking (Last Updated: January 14, 2003)
www.finra.org/investors/alerts/mutual-fund-breakpoints-break-worth-taking
Exchange-Traded Funds Rules and Notices
FINRA Rule 2210. Interpretive Guidance Questions and Answers Provision of Related Performance (March 9, 2017)
www.finra.org/industry/finra-rule-2210-questions-and-answers
FINRA Regulatory Notice 09-31, FINRA Reminds Firms of Sales Practice Obligations Relating to Leveraged and Inverse Exchange-Traded Funds (June 2009)
www.finra.org/sites/default/files/NoticeDocument/p118952.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 5
Miscellaneous
FINRA Interpretive Letter, Additional Guidance Regarding the Use of Pre-Inception Index Performance in Institutional Communications (April 22, 2013)
www.finra.org/industry/interpretive-letters/april-22-2013-1200am
SEC Fast Answers, Exchange-Traded Funds (ETFs) (Modified: November 8, 2013)
www.sec.gov/fast-answers/answersetfhtm.html
Podcast, Non-Traditional Exchange-Traded Funds (July 13, 2009)
www.finra.org/industry/podcasts/non-traditional-exchange-traded-funds
FINRA Guidance, Non-Traditional ETFs Frequently Asked Questions
www.finra.org/industry/non-traditional-etf-faq News / Alerts
Investor Bulletin: Exchange-Traded Funds (ETFs) (August 10, 2012)
https://investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-bulletin-exchange-traded-funds-etfs
Investor Alert, Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors (Last Updated: August 18, 2009)
www.finra.org/investors/alerts/leveraged-and-inverse-etfs-specialized-products-extra-risks-buy-and-hold-investors
News Release, FINRA, SEC Warn Retail Investors About Investing in Leveraged or Inverse ETFs (August 18, 2009) www.finra.org/newsroom/2009/finra-sec-warn-retail-investors-about-investing-leveraged-or-inverse-etfs
Regulatory & Compliance Alert, Exchange-Traded Fund Performance (Fall 2001), Pages 12 & 13
www.finra.org/sites/default/files/RCA/p002372.pdf
Closed-End Funds
FINRA Interpretive Letter A member firm may include related performance information in institutional communications concerning continuously offered closed-end funds, subject to the stated conditions discussed in the letter. (June, 2017)
www.finra.org/industry/interpretive-letters/june-12-2017-1200am
Investment Company Institute, Frequently Asked Questions About Closed-End Funds and Their Use of Leverage (May 2017)
www.ici.org/cef/background/faqs_closed_end
Investment Company Institute, A Guide to Closed-End Funds (May 2017)
www.ici.org/cef/background/bro_g2_ce
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 6
SEC Fast Answers, Closed-End Fund Information (Modified: January 16, 2013)
www.sec.gov/fast-answers/answersmfclosehtm.html
NASD Notice to Members 03-07, NASD Reminds Members of Obligations When Selling Hedge Funds (February 2003)
www.finra.org/sites/default/files/NoticeDocument/p003358.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
General Brokerage Communications Trends Thursday, October 5 1:45 p.m. – 2:45 p.m. Panelists from FINRA and the industry discuss advertising compliance and sales practice issues applicable to general brokerage firms and their registered representatives. Industry panelists explore advertising compliance challenges and how they address the advertising rules with respect to dually registered representatives, marketing materials created by third parties, and new investment products. This panel also covers current areas of interest such as business development companies, private placements and research reports. Moderator: David Roscum Associate Director FINRA Advertising Regulation Panelists: Stephanie Gregory Principal Analyst FINRA Advertising Regulation
Kimberly Johnson Vice President of Marketing Regulatory Review LPL Financial, LLC Robert Sondheim Director, Compliance E*TRADE Securities LLC
I. Introduction
II. Firm’s Advertising Compliance review process
III. Seminars and Radio Shows
IV. Material used by dually registered representatives
V. Wrap-up
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
General Brokerage Communications Trends Panelist Bios: Moderator: David Roscum is a manager in the Advertising Regulation Department and oversees staff involved in the Investigative, Spot-Check and Filing programs. In addition to his 20-plus years of regulation experience, Mr. Roscum served as a compliance officer for T. Rowe Price for five years, and was a registered investment adviser and registered representative for three years. Mr. Roscum is a CPA and holds a bachelor’s degree from The University of Iowa, an M.B.A. from Marymount University and a master’s degree in taxation from Taft University. Panelists: Stephanie Gregory is Principal Analyst in FINRA's Advertising Regulation Department. Prior to joining FINRA in 2004, Ms. Gregory worked in compliance and advertising review with a member firm. Ms. Gregory received a bachelor’s degree in economics and political science from Boston University, and her law degree from Pennsylvania State University Dickinson School of Law. Kimberly Johnson is Vice President of Marketing Regulatory Review at LPL Financial. In this role, she is responsible for the oversight of the Firm’s policies and procedures of all communications distributed by LPL or their advisors. This includes all advisor use only content, corporate communications, research materials and information prepared for advisor use with their clients and/or prospects. Further, Ms. Johnson has ultimate responsibility of the department’s compliance program to ensure all communications with the public are compliant with FINRA Rule 2210, applicable regulatory and state requirements and LPL policies. Ms. Johnson has accumulated more than 17 years of industry experience and has held various compliance roles in a similar capacity at MetLife, MassMutual and TradeKing. She graduated from the University of Connecticut at Storrs with a BA in communications and holds FINRA series 4, 7, 24, and 63 licenses. Robert Sondheim is Director, Compliance at E*TRADE and is responsible for managing the Firm’s advertising review department. He has over 25 years’ experience in the financial services industry, including four years as a Supervising Analyst in FINRA’s Advertising Regulation department, where he managed the review of member firms’ advertising and sales literature for compliance with FINRA, SEC, MSRB and SIPC rules and regulations. He has been with E*TRADE since 2002 and has held various managerial roles within the Firm’s compliance program. Mr. Sondheim holds the Series 4, 7, 24, 51 and 63 licenses.
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
General Brokerage Communications
Trends
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Moderator
David Roscum, Associate Director, FINRA Advertising Regulation
Panelists
Stephanie Gregory, Principal Analyst, FINRA Advertising Regulation
Kimberly Johnson, Vice President of Marketing Regulatory Review, LPL Financial, LLC
Robert Sondheim, Director, Compliance, E*TRADE Securities LLC
1
Panelists
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
What we do, business and type of advertisements
Advertising compliance review process
Training staff
Keeping current with advertising rules and guidance
How we approach risk
2
From the Firm’s Perspective
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Training registered representatives
Providing pre-approved content
Registered representative created content
Turnkey services
Vendor participation
Considerations for client events
3
Seminars and Radio Shows
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Choosing business partners
Vetting third-party vendors and sales material
Review and approval process
Third-party websites
4
Third-Party Created Sales Material
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Target marketing
Marketing to seniors
Complex product communications
Securities-backed lines of credit
Business Development Companies
Private Placements
Research Reports
5
Unique Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Review and approval process
Filing sales material
Regulatory challenges
6
Dually Registered BD / IA Representatives
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
How registered representatives promote themselves
Designations
Awards
Titles
Business group names
7
Registered Representative Considerations
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
General Brokerage Communications Trends Thursday, October 5 1:45 p.m. – 2:45 p.m. Resources FINRA Notices
FINRA Regulatory Notice 15-31, Debt Research (August 2015)
www.finra.org/sites/default/files/Regulatory-Notice-15-31.pdf
FINRA Regulatory Notice 15-30, Equity Research (August 2015)
www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-15-30.pdf
FINRA Regulatory Notice 12-29, Communications with the Public. SEC Approves New Rules Governing Communications with the Public (June 2012)
www.finra.org/sites/default/files/NoticeDocument/p127014.pdf
FINRA Regulatory Notice 12-03, Heightened Supervision of Complex Products (January 2012)
www.finra.org/sites/default/files/NoticeDocument/p125397.pdf
FINRA Regulatory Notice 10-52, Application of Rules on Communications With the Public and Institutional Sales Material and Correspondence to Certain Free Writing Prospectuses (October 2010)
www.finra.org/sites/default/files/NoticeDocument/p122310.pdf
FINRA Regulatory Notice 10-09, Reverse Convertibles. FINRA Reminds Firms of Their Sales Practice Obligations With Reverse Exchangeable Securities (Reverse Convertibles) (February 2010)
www.finra.org/sites/default/files/NoticeDocument/p120920.pdf
FINRA Regulatory Notice 08-82, Sales Practice Obligations with Regard to Cash Alternatives (December 2008)
www.finra.org/sites/default/files/NoticeDocument/p117559.pdf
FINRA Regulatory Notice 08-27, Supervising Registered Representatives’ Use of Marketing Materials to Establish Expertise (May2008)
www.finra.org/sites/default/files/NoticeDocument/p038522.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
FINRA Regulatory Notice 07-43, FINRA Reminds Firms of Their Obligations Relating to Senior Investors and Highlights Industry Practices to Serve these Customers (September 2007)
www.finra.org/sites/default/files/NoticeDocument/p036816.pdf
Notice to Members 05-59, Structured Products. NASD Provides Guidance Concerning the Sale of Structured Products (September 2005)
www.finra.org/sites/default/files/NoticeDocument/p014997.pdf
Notice to Members 03-71, Obligations When Selling Non-Conventional Investments (November 2003)
www.finra.org/sites/default/files/NoticeDocument/p003070.pdf
Investor Alert
Structured Notes With Principal Protection: Note the Terms of Your Investment (June 2011)
www.finra.org/investors/alerts/structured-notes-principal-protection-note-terms-your-investment
Reverse Convertibles – Complex Investment Vehicles (February 2010)
www.finra.org/investors/alerts/reverse-convertibles-complex-investment-vehicles
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Design Thinking Workshop Thursday, October 5 3:00 p.m. – 4:00 p.m. Christine Wheatley, Design Strategist at Fidelity Labs, leads this dynamic session on using design thinking principles to create more effective disclosures in communications with the public. Moderator: Christine Wheatley Principal Design Strategist Fidelity Investments LLC Panelists: Alexander Gavis Senior Vice President and Deputy General Counsel, FMR Legal Department Fidelity Investments LLC Thomas Pappas Vice President FINRA Advertising Regulation
I. Introduction
II. Overview of Design Thinking A. What is Human Centered Design B. What is Empathy Research C. What is Rapid Prototyping and Testing
III. Design Thinking Exercises
A. Developing User Empathy and Seeking Opportunities B. Designing a Prototype C. Testing for Actionable Feedback
IV. Debrief
A. Applying Design Thinking to Your Work B. New Areas to Explore C. Resources
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
Design Thinking Workshop Panelist Bios: Moderator: Christine Wheatley is a principal design strategist at Fidelity Labs where she has applied human-centered design to everything from financial wellness to digital currency. In her role, Ms. Wheatley helps her colleagues bring a customer lens to their work and translate people’s needs into design solutions. Prior to joining Fidelity Labs, Ms. Wheatley was focused on solving problems in the non-profit sector at both The Clinton Foundation and UNICEF. Ms. Wheatley is a graduate of the MBA program at the Rotman School of Management where she served as Director of the Rotman Design Challenge. Panelists: Alexander C. Gavis is Senior Vice President & Deputy General Counsel in the Corporate Legal Department of FMR LLC, the parent company of Fidelity Investments, one of the largest brokerage and mutual fund companies in the United States and the leading provider of workplace retirement savings plans. He manages a team of attorneys and professionals responsible for providing legal services to the firm's retail brokerage, stock plan and workplace retirement businesses. He also oversees and manages legal services for Fidelity's businesses involved in electronic and mobile commerce, start-up innovation, and social media. Mr. Gavis provides legal advice on all of Fidelity’s national advertising and marketing initiatives. Prior to joining Fidelity in 1997, Mr. Gavis served as Assistant Counsel at the Investment Company Institute and as Senior Counsel in the Office of General Counsel at the U.S. Securities and Exchange Commission, both in Washington, DC. He also served as a judicial law clerk for The Honorable William T. Allen, Chancellor of the Court of Chancery for the State of Delaware. He has worked in investment banking in New York at Salomon Brothers Inc, handling mergers and acquisitions. Mr. Gavis received his J.D., cum laude, from the University of Pennsylvania Law School, where he served as Editor-in-Chief of the University of Pennsylvania Law Review, and his bachelor’s degree, with High Honors and Phi Beta Kappa, from Swarthmore College. As an adjunct professor at Suffolk University Law School, he teaches the class “Designing Thinking for Lawyers and Business Professionals” and has taught at the Stanford University Design and Law Schools and at Harvard Law School. Mr. Gavis currently serves as chair of FINRA’s Public Communications Committee and past member of the Social Media Task Force (chair) and E-Brokerage (chair) and Membership Committees. Thomas A. Pappas is Vice President of the FINRA Advertising Regulation Department, which regulates the advertisements, sales literature and correspondence used by FINRA member firms. His responsibilities include rule development, management of the filing and surveillance programs and related enforcement activities. He served in the same role at NASD before its 2007 consolidation with NYSE Member Regulation, which resulted in the formation of FINRA. He was previously registered with Davenport & Company LLC. He received a bachelor’s degree from The University of Richmond and an MBA from Virginia Commonwealth University.
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Moderator
Christine Wheatley, Principal Design Strategist, Fidelity
Investments LLC
Panelists
Alexander Gavis, Senior Vice President and Deputy General
Counsel, FMR Legal Department, Fidelity Investments LLC
Thomas Pappas, Vice President, FINRA Advertising Regulation
1
Panelists
89% OF COMPANIES BELIEVE
CUSTOMER EXPERIENCE WILL
BE THEIR PRIMARY BASIS OF
COMPETITION IN 2016.(in 2011 that number was 36%)
“IF WE LOOK DEEPLY INTO
MOST PROBLEMS, WE WILL
FIND PEOPLE. BUT IF WE
LOOK DEEPLY INTO
PEOPLE, WE WILL FIND
OUR SOLUTIONS.” – DAN
ROAM
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Helping Small Firms Navigate the Communications Rules Thursday, October 5 3:00 p.m. – 4:00 p.m. How do small firms stay in compliance with the communications with the public rules? FINRA staff and industry panelists answer audience questions and provide practical tips and helpful guidance. Moderator: Gregory Riviello Director FINRA Advertising Regulation Panelists: Nanette Chern Chief Compliance Officer Funds Distributor, LLC John Veator Senior Director FINRA Member Relations and Education James Webb Principal and Chief Executive Officer Cape Securities, Inc.
I. Introduction
II. Challenges small firms face
III. Addressing those challenges A. Supervision, recordkeeping B. Working with marketing/registered reps C. Complying with the advertising rules D. Technology
IV. Working with FINRA
V. Tips for successful advertising compliance
VI. Wrap-up
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
Helping Small Firms Navigate the Communications Rules Panelist Bios: Moderator: Gregory Riviello is a director in FINRA’s Advertising Regulation Department which is responsible for the regulation of FINRA member firms’ communications with the public. Mr. Riviello is responsible for supervising the daily activities of 25 staff devoted to the review of communications filed with the Department. He provides guidance to Department staff and FINRA firms on the application of the advertising rules and interpretations and also assists with the development of these rules. His other responsibilities include coordinating the Department’s recruiting, training and quality control functions. Mr. Riviello has spoken about various advertising regulation topics at industry events and at the FINRA Advertising Regulation Conferences. Mr. Riviello has more than 35 years of experience in the securities industry including 27 years with the Advertising Regulation Department. He is a graduate of West Chester State University in West Chester, Pennsylvania, and holds an MBA from the University of Maryland. Panelists: Nanette K. Chern is Chief Compliance Officer for Funds Distributor, LLC, a subsidiary of Foreside Financial Group, LLC based in Portland, Maine. Funds Distributor, LLC is a limited purpose broker-dealer that serves as the principal underwriter to open-end investment companies and as placement agent to privately placed funds. Additionally, Funds Distributor, LLC provides registered representative services to employees of fund sponsors that market fund shares. Ms. Chern serves as the Chief Compliance Officer of eight additional affiliated broker-dealers, as well as serving as the AML Compliance Officer. Ms. Chern has 30 years of experience working in the securities industry with distributors that provide distribution and compliance services to open- and closed-end funds, exchange-traded products, commodity pools, and private placements. Prior to joining Foreside and its affiliated and predecessor firms in 1995, Ms. Chern served as Assistant Counsel at First Investors Corporation in New York City and as Staff Attorney at the New York Regional Office of the U.S. Securities and Exchange Commission. Ms. Chern graduated from Swarthmore College and Fordham University School of Law and maintains her Series 7, 24, and 79 licenses. John Veator is Senior Director in FINRA’s Office of Member Relations and Education. His duties include advising firms on FINRA initiatives, rules and resources. He also collects feedback from the industry and advocates for changes to FINRA’s programs where appropriate. Previously, he was a senior counsel in FINRA’s Regulatory Policy Office, where he advised FINRA exam staff on rule interpretations and conducted administrative actions. He was also a senior staff member of FINRA’s Registration and Disclosure Department, where he advised on state securities laws and processes. Prior to joining FINRA, Mr. Veator served as the North American Securities Administrators Association’s (NASAA) Deputy General Counsel and was NASAA’s Acting General Counsel when he left the association to join NASD. Mr. Veator received his bachelor’s degree from Colgate University and his JD from Vanderbilt Law School. Jim R. Webb, Principal and CEO of Cape Securities, Inc., began his career in 1990 as a financial planner and has continued to grow in the evolving industry. For 14 years of his 27 years, he worked for several fund and annuity companies as their regional wholesaler. In that time, he met with thousands of brokers and hundreds of broker dealers and was a valued partner in their growth. Mr. Webb’s leadership skills, passion for improved services for his clients and reputation as a problem solver all contributed to his success as a wholesaler. In 2007, Mr. Webb became the owner of Cape Securities, Incorporated. Intent on overcoming the challenges of growing a FINRA compliant small firm, Mr. Webb determined that being actively involved in understanding and advocating on regulatory matters and forming strong networking relationships with other small member firms and FINRA was essential for the success and growth of his company. By his steady and enthusiastic joint commitment to his individual business interest and members of the industry as a whole, Cape has grown over the past 10 years from a tiny firm with just two financial advisors into a firm with just under 100 representatives serving customers nationwide. Mr. Webb is a member of the District 7 committee and he is on the Regulatory Advisory Committee (RAC). As a member of these committees Mr. Webb applied a practical and common-sense approach to balancing the needs of regulators, with the challenges faced by a small firm. Mr. Webb enjoys productive interaction with other FINRA members and staff in seeking solutions
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 3
to problems that face the industry nationwide, he sought to serve and has served, both past and present. Mr. Webb has served as a panelist and speaker at many FINRA regional and National meetings. Topics covered include: How a small firm can best use social media, Changes in business and how to best consult the CMA/MAP groups and Outside Business activities, among others. He currently holds Series 4, 7, 8, 24, 28, 63, and 66 Securities Registrations and insurance licenses. While building his broker dealer he created and insurance agency and a SEC registered investment advisory to provide clients a true financial concierge.
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Helping Small Firms Navigate the
Communications Rules
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Moderator
Gregory Riviello, Director, FINRA Advertising Regulation
Panelists
Nanette Chern, Chief Compliance Officer, Funds Distributor, LLC
John Veator, Senior Director, FINRA Member Relations and Education
James Webb, Principal and Chief Executive Officer, Cape Securities, Inc.
1
Panelists
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Some of the key challenges small firms face regarding advertising compliance.
How to address some of these challenges.
How to effectively work with FINRA’s Advertising Regulation Department.
What compliance resources FINRA has available for small firms.
Important compliance tips for successfully navigating the advertising rules.
2
By the end of this session, you should know:
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Under the “Schedule” icon on the home screen,
Select the day,
Choose the Helping Small Firms Navigate the
Communications Rules session,
Click on the polling icon:
3
To Access Polling
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
1. How would you describe your firm?
a. <10 Registered Reps
b. 10-50 Registered Reps
c. 51-150 Registered Reps
d. >150 Registered Reps
4
Polling Question 1
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
2. How frequently does your firm file communications
with FINRA’s Advertising Regulation Department?
a. 1 or 2 communications per year
b. 1 communication per month on average
c. 2 to 10 communications per month
d. 11 to 25 communications per month
e. 25+ communications per month
5
Polling Question 2
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
What are some of the biggest challenges small firms
face when it comes to advertising compliance?
6
Challenges
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
What is the biggest challenge your legal and compliance staff face regarding advertising compliance?
a. Supervision of advertising including WSPs that set forth a clear review process
b. Working with your marketing team and/or registered reps to ensure compliance
c. Fear of not complying with the advertising rules
d. Keeping up with the latest technologies that can help with advertising compliance or that create new ways to distribute communications
e. Record retention requirements
7
Challenges
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
3. What is the biggest challenge your legal and
compliance staff face regarding advertising
compliance?
a. Supervision of advertising
b. Working with marketing / registered reps
c. Fear of not complying with the rules
d. Keeping up with the latest technologies
e. Record retention
8
Polling Question 3
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Supervision
Working with marketing
Complying with the rules
Technology
Record retention
9
Addressing the Challenges
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Where to find written regulatory guidance on
advertising regulation
Advertising Regulation Website: www.finra.org/Advertising
–Regulatory Notices organized by subject matter
– Interpretive letters
– FINRA Rule 2210 (Communications With the Public) FAQs
10
Working with FINRA
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Who should you call at FINRA for general compliance questions?
Who should you call at FINRA’s Advertising Regulation Department when you have questions?
Firms should always feel free to contact Advertising Regulation to discuss:
– General advertising compliance questions
– Questions about the filing requirements
– Questions about specific rule application
– Questions about comments received in a review letter
– The introduction of a new product or marketing strategy
Telephone number: 240-386-4500
11
Working with FINRA
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Written supervisory procedures
Knowledgeable ad review principal
Training your staff
Review process
Engaging FINRA
12
Tips for Successful Advertising Compliance
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
?
13
Questions and Answers
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Variable Insurance Products: Current Advertising Issues Thursday, October 5 3:00 p.m. – 4:00 p.m. Panelists from FINRA and the industry conduct this interactive session—first with a brief overview of the essentials for creating compliant communications, followed by a discussion of specific areas that frequently raise questions and regulatory challenges. The panelists also explore new developments, including complex structures of contracts and investment options, along with how firms address the compliance challenges they raise. Moderator: Pramit Das Associate Director - Technology FINRA Advertising Regulation Panelists: Richard Choi Attorney Carlton Fields Joseph George Associate Director FINRA Advertising Regulation Julie Leitwein Senior Compliance Director Nationwide Financial Services
I. Introduction
II. Creating a Variable Product Communication A. Content B. Performance C. Case Summary
III. Hypothetical Illustrations and Comparisons
IV. Complexity of Contracts and Investment Options
V. Best Practices
VI. Managing Disrupters
VII. The Definition and Standards of “Materiality”
VIII. Importance of Audience/Context, Substantiating Claims, and Disclosure
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
IX. Successful Review Process
X. Q&A and Wrap-up
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 3
Variable Insurance Products: Current Advertising Issues Panelist Bios: Moderator: Pramit Das is Associate Director-Technology of FINRA’s Advertising Regulation Department. In this role, his responsibilities include managing a filings review group; assisting with administration of the filings review program; developing and maintaining the department’s technology needs; providing education to members, FINRA staff and other regulatory staff; and participating in certain rule amendment and rulemaking projects as necessary. He served in the same role at NASD before its 2007 consolidation with NYSE Member Regulation. Prior to joining NASD in 1994, Mr. Das worked for Metropolitan Life Insurance Company and Arthur Andersen & Co. He holds an MBA in Finance from the University of Maryland, College Park, and an MA in Financial Economics from Clemson University, Clemson, South Carolina. He was also Series 7 and 63 registered. Panelists: Richard Choi has extensive experience advising investment companies, investment advisers, broker-dealers, and life insurance companies on federal and state securities and insurance compliance and regulatory matters. Mr. Choi's experience includes advising investment company boards, independent directors and trustees, and special committees of directors and trustees. He counsels clients on the development and distribution of sophisticated financial products, such as variable annuities, variable life insurance, and face-amount certificates. His experience also includes representation of investment advisers and investment companies in regulatory compliance inspections and examinations, opinions on the availability of 1940 Act exemptions in connection with various types of transactions, and in-house training and education seminars on a variety of regulatory and compliance matters. He has published numerous articles and regularly speaks on federal securities issues relating to variable insurance products and mutual funds. He has appeared on Bloomberg TV and has been quoted in Bloomberg, the Chicago Tribune, the Los Angeles Times, National Underwriter, U.S. Banker, the Wall Street Journal Online, and other financial and trade publications. Mr. Choi is the securities and investment companies industry group co-leader. Joseph George is Associate Director in FINRA’s Advertising Regulation Department, where he supervises analysts who review communications with the public for compliance with applicable rules. He has been with the department for more than 20 years and has spoken on panels at Advertising Regulation Department Conferences over the past 15 years. Prior to joining FINRA, he worked for New York Life as a registered representative and was a project manager with Computer Sciences Corporation. Mr. George holds a bachelor’s degree in economics from the University of Maryland. Julie Leitwein, Senior Director of Communications Compliance, is responsible for the review and approval of sales and marketing material for Nationwide Financial Services. She uses a risk-based and collaborative problem-solving approach to ensure the material hits the mark from a business and regulatory perspective. Before joining Compliance, she held various roles in Nationwide Marketing, concentrating on life insurance and annuities in financial institutions, independent broker-dealers and brokerage general agencies. Ms. Leitwein holds Series 6, 7, 24 and 26 licenses and earned a BS in Marketing from The Ohio State University and an MBA from Franklin University in Columbus, Ohio.
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Variable Insurance Products: Current
Advertising Issues
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Moderator
Pramit Das, Associate Director-Technology, FINRA Advertising
Regulation
Panelists
Richard Choi, Attorney, Carlton Fields
Joseph George, Associate Director, FINRA Advertising
Regulation
Julie Leitwein, Senior Compliance Director, Nationwide
Financial Services
1
Panelists
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Content:
Identify the product.
Provide a sound basis to evaluate the product.
Address risks, fees, tax issues, and potential penalties, as needed.
Clearly explain how riders work, if applicable.
Disclose limitations of any guarantees mentioned.
Balance any discussion of investment features of VLI with a discussion of the insurance component.
Disclose the long-term nature of a VA.
2
Creating a Variable Product Communication
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 3
Rule Violations that Led to Formal Action
Failed to have VLI communications approved by firm’s registered
principal.
Incorrectly compared VLI to buying term life insurance and
investing the difference in a side product net of fees associated
with the side product.
Failed to accompany the comparison with a 0% illustration.
Sent article reprints and other communications to clients which: included inaccurate or incomplete statements;
over-emphasized the investment features of VLI; and
did not balance with discussion of the insurance features.
Suspension and $5,000 fine.
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 4
Creating a Variable Product Communication
Performance:
Variable Annuities: SEC performance standards apply.
Must be net of all recurring and non-recurring fees and expenses.
Returns must be keyed off inception date of separate account.
Variable Life: SEC performance standards do not apply.
Apply FINRA Rule 2210(d)(1)(A).
At a minimum, deduct investment option management fees.
Prominently disclose fees/charges deducted and not deducted.
Disclose that the performance would have been lower if all fees
and charges had been deducted.
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Can we show…
(A) Separate account onward?
YES, BUT – Deduct fees and charges
Disclose CDSC
(B) Predating separate account?
YES, BUT – Deduct fees and charges
Disclose CDSC
Must also show (A)
(C) Predating separate account without fees and charges?
YES, BUT – Must also show (A) and (B)
5
Rubric for Predated Variable Annuity Performance
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 6
Hypothetical Illustrations and Comparisons
Supplemental Hypothetical Illustrations:
Weighted Average Expense
Random Rate
Split Annuity
Rider
Historical Performance
Comparisons:
Product-to-Product
Investor Driven vs. Advisor Driven
Tax Treatment
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Structured Investment Options
Crediting Methods
Caps & Buffers
Alternative Investments
Leveraged ETFs
Investment-Only Variable Annuities
Fee or Commission Based
ETF-Only Variable Annuities
7
Complexity of Contracts and Investment Options
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 8
Rule Violations that Led to Formal Action
7,238 registered personnel, 923 branch offices
Misrepresentation and omission regarding costs and
guarantees of new product in 1035 exchanges, fees understated
on statements
Over 5 year period: 35,500 1035 exchanges,
$3B in VAs,
$152M in commissions
Lack of supervision: ¾ with misrepresentation or missing material information
99.79% approved
Censure, $20M fine, replacement contracts
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Relationships with Business Units:
Business
– Distribution and Corporate Marketing
– Product Development
– Actuary
– Underwriting
– Legal
– Compliance
Regulators
Seat at the table
9
Industry Perspective - Best Practices
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Compliance by competition
Process and controls
Training
10
Industry Perspective – Effective Practices
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Product simplification v. niche Jefferson National
IMOs/BGAs
Services Intelligent underwriting
Care Concierge
Riders
Thought leadership
Distribution
Partnerships – buy, build, or partner
11
Industry Perspective – Managing Disrupters
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Applies to prospectuses and oral communications that:
Contain untrue statements of a material fact.
Omit a material fact necessary to make the statements,
in light of the circumstances under which they were
made, not misleading.
12
Legal Perspective – Securities Act §12 Civil Liabilities
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
SEC Rule 405 definition:
“The term material, when used to qualify a requirement
for the furnishing of information as to any subject, limits
the information required to those matters to which there
is a substantial likelihood that a reasonable investor
would attach importance in determining whether to
purchase the security registered.”
13
Legal Perspective – Materiality
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
What might be material?
Accuracy of performance
Contributors to performance
Fees and charges
Risks
Product guarantees and features
Assumptions used in illustrations
14
Legal Perspective – Materiality
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Retail investors
Mainstreet
Sophisticated investors
Seniors, non-English speaking, other special considerations
Institutional investors
Broker-dealer only
15
Legal Perspective – Audience/Context
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Verify that it is:
Accurate and complete
Bona Fide
Current
16
Legal Perspective – Claim Support
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Living benefits
Fixed, indexed, MVA, structured, and other products
Fees and charges
Complexity
Disclosure “creep”
Disclosure placement
Performance
Error correction
17
Legal Perspective – Disclosures
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Prepare early
Review iteratively
Approve appropriately
Make filings completely
Include partners broadly
Train and educate continually
18
Legal Perspective – Process
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 19
Variable Insurance Products: Current Advertising Issues
Questions & Answers
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Variable Insurance Products: Current Advertising Issues Thursday, October 5 3:00 p.m. – 4:00 p.m. Resources FINRA Rules
FINRA Rule 2211. Communications with the Public About Variable Life Insurance and Variable Annuities
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=12586
FINRA Rule 2111. Suitability
http://finra.complinet.com/en/display/display.html?rbid=2403&element_id=9859
FINRA Rule 2320. Variable Contracts of an Insurance Company
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=8494
FINRA Rule 2330. Members Responsibilities Regarding Deferred Variable Annuities
http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=8824
FINRA Rule 3270. Outside Business Activities of Registered Persons http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=9467
Variable Annuities: FINRA Notices:
Notice to Members 09-32, SEC Approves Amendments to NASD Rule 2821 Governing Purchases and Exchanges of Deferred Variable Annuities (June, 2009)
www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p118954.pdf
Notice to Members 08-39 , FINRA Requests Comments on Proposed New Rules Governing Communications About Variable Insurance Products (July 2008)
www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p038981.pdf
Notice to Members 99-35, NASD Reminds Members of their Responsibilities Regarding the Sale of Variable Annuities (May 1999)
www.finra.org/industry/notices/99-35
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
Alerts:
Investor Alert, Should You Exchange Your Variable Annuity (March 2, 2006)
www.finra.org/Investors/ProtectYourself/InvestorAlerts/AnnuitiesAndInsurance/P006045
NASD Member Alert, NASD Reminds Members of their Responsibilities Regarding Hypothetical Tax-Deferral Illustrations in Variable Annuity Communications (May 10, 2004)
www.nasaa.org/wp-content/uploads/2011/08/7-P002746.htm
Investor Alert, Beyond the Hard Sell (May 27, 2003)
www.finra.org/Investors/ProtectYourself/InvestorAlerts/AnnuitiesAndInsurance/P005976
Regulatory & Compliance Alert, Performance Pre-dating the Offering of a Fund in the Variable Annuity (Summer 2002), Page 8
www.finra.org/sites/default/files/RCA/p002369.pdf
Regulatory & Compliance Alert, Reminder – Suitability of Variable Annuity Sales (Spring 2002) Page 13
www.finra.org/sites/default/files/RCA/p002370.pdf
Regulatory & Compliance Alert, NASD Regulation Cautions Firms For Deficient Variable Annuity Communications (Spring 2002), Page 10
www.finra.org/sites/default/files/RCA/p002370.pdf
Reports and Studies:
Joint SEC/NASD Staff Report on Examination Findings Regarding Broker-Dealer Sales of Variable Insurance Products (June 2004)
www.sec.gov/news/studies/secnasdvip.pdf
FINRA News Releases:
FINRA News Release, FINRA Sanctions MetLife Securities, Inc. $25 Million for Negligent Misrepresentations and Omissions in Connection with Variable Annuity Replacements (May 3, 2016)
www.finra.org/newsroom/2016/finra-sanctions-metlife-securities-inc-25-million-negligent-misrepresentations-and
FINRA News Release, FINRA Fines Bank Broker-Dealers $1.65 Million for Supervisory Failures in Variable Annuity, Mutual Fund and UIT Transactions (July 23, 2009)
www.finra.org/Newsroom/NewsReleases/2009/P119424
FINRA News Release, FINRA Fines Fifth Third Securities $1.75 Million for 250 Unsuitable Variable Annuities Transactions (April 14, 2009)
www.finra.org/Newsroom/NewsReleases/2009/P118471
FINRA News Release, FINRA Hearing Panel Fines Mutual Service Corp. More than $1.5 Million for Supervisory Failures, Falsifying Records Relating to VA Exchanges (March 19, 2009)
www.finra.org/Newsroom/NewsReleases/2009/P118176
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 3
FINRA News Release, David Lerner Associates Suspended from Conducting New Business in Variable Annuities, Variable Life Insurance for 30 Days, Fined $400,000 for Violation of New York State, NASD Regulations (March 2, 2006)
www.finra.org/newsroom/2006/david-lerner-associates-suspended-conducting-new-business-variable-annuities-variable
FINRA News Release, NASD Fines Hornor, Townsend & Kent, Inc. $325,000 for Improper Sales Contests, Email and Supervision Violations: Firm Ordered to Prohibit Variable Product Sales Contests for Three Years (July 6, 2005)
www.finra.org/newsroom/2005/nasd-fines-hornor-townsend-kent-inc-325000-improper-sales-contests-email-and
FINRA News Release, Waddell & Reed, Inc. Agrees to Pay $5 Million Fine, up to $11 Million in Restitution to Settle NASD Charges Relating to Variable Annuity Switching (April 29, 2005)
www.finra.org/newsroom/2005/waddell-reed-inc-agrees-pay-5-million-fine-11-million-restitution-settle-nasd-charges
FINRA News Release, Jefferson Pilot to Pay Over $500,000 in First VUL Market Timing Action; NASD Also Fines Affiliate $125,000 for E-Mail Retention Violations (March 16, 2005)
www.finra.org/newsroom/2005/jefferson-pilot-pay-over-500000-first-vul-market-timing-action-nasd-also-fines
FINRA News Release, NASD Bars Former AmSouth Broker for Fraud in the Sale of Variable Annuities (November 29, 2004)
www.finra.org/newsroom/2004/nasd-bars-former-amsouth-broker-fraud-sale-variable-annuities
Variable Life Insurance: FINRA Notices
FINRA Regulatory Notice 13-31 Suitability, FINRA Highlights Examination Approaches, Common Findings and Effective Practices for Complying With its Suitability Rule (September 2013)
www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p351220.pdf
NASD Notice to Members 09-42, FINRA Reminds Firms of Their Obligations With Variable Life Settlement Activities (July 2009) www.finra.org/Industry/Regulation/Notices/2009/P119547
Notice to Members 96-86, NASD Regulation Reminds Members and Associated Persons that Sales of Variable Contracts are Subject to NASD Suitability Requirements (December 1996)
www.finra.org/industry/notices/96-86
NASD Notice to Members 06-38, Member Obligations with Respect to the Sale of Existing Variable Life Insurance Policies to Third Parties (August 2006) www.finra.org/Industry/Regulation/Notices/2006/p017133
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 4
Notice to Members 00-44, NASD Reminds Members of their Responsibilities Regarding the Sale of Variable Life Insurance (July 2000)
www.finra.org/industry/notices/00-44
Alerts:
Regulatory & Compliance Alert, Fund Level Expense in Variable Life Hypothetical Illustrations (Spring 2002) (Page 12)
www.finra.org/newsroom/2004/nasd-bars-former-amsouth-broker-fraud-sale-variable-annuities
Regulatory & Compliance Alert, Presentation of Variable Life Insurance Performance in Member Communications (Winter 2001) (Page 3)
www.finra.org/sites/default/files/RCA/p002371.pdf
Regulatory & Compliance Alert, Internal Rate of Return in Variable Life Hypothetical Illustrations (Winter 1998) (Page 31)
www.finra.org/sites/default/files/RCA/p002412.pdf
Regulatory & Compliance Alert, Ask the Analyst: What are the Filing Requirements, If Any, for Variable Annuity and Variable Life Hypothetical Illustrations (Winter 1998) (Page 34)
www.finra.org/sites/default/files/RCA/p002412.pdf
Regulatory & Compliance Alert, Ask the Analyst: May We Discuss Tax Deferral in Our Variable Life Insurance Brochures? (Spring 1997 (Page 20) www.finra.org/sites/default/files/RCA/p002385.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Social Media and Digital Communications Thursday, October 5 4:15 p.m. – 5:15 p.m. FINRA and industry experts discuss the guidance provided in FINRA’s Regulatory Notice 17-18. Panelists address how firms have implemented the guidance and respond to follow-up questions. The panel also looks at developing areas, such as live streaming video and how firms integrate cybersecurity and data privacy into digital communications compliance. Moderator: Amy Sochard Senior Director FINRA Advertising Regulation Panelists: Stephen Bard
Senior Vice President - WIM Director of Social Media and Communications Compliance Wells Fargo Advisors
Ted Newton Assistant Vice President MassMutual Financial Group
I. Introduction
II. Regulatory Notice 17-18 and Follow Up Questions A. Text Messaging B. Personal Communications C. Hyperlinks and Sharing D. Native Advertising E. Testimonials and Endorsements F. Correction of Third-Party Content G. BrokerCheck Disclosure
III. Integrating Risk Management into Compliance
A. Data Privacy B. Cybersecurity
IV. Live Streaming Content and Video
A. What Does the Future Look Like??
V. Wrap Up & Questions
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
Social Media and Digital Communications Panelist Bios: Moderator: Amy C. Sochard is Senior Director in FINRA’s Advertising Regulation Department. The department protects investors by ensuring broker-dealer members of FINRA use advertisements and other sales communications that are fair, balanced and not misleading. Ms. Sochard leads the department’s complex and targeted review activities. She also serves as liaison to FINRA departments involved in examinations, including the departments of Enforcement and Member Regulation. In addition, Ms. Sochard oversees staff dedicated to the routine review of communications filed with the department by broker-dealers. Ms. Sochard assists in the development of rules and interpretations for communications with the public and social media, and she routinely speaks at industry events on these topics. Prior to joining FINRA’s predecessor (NASD), Ms. Sochard worked with a real estate syndication firm in Washington, DC. She received a bachelor’s degree with distinction in English from the University of Virginia and studied poetry writing at Columbia University. Panelists: Stephen R. Bard is Senior Vice President, and Wells Fargo's Wealth and Investment Management’s Director of Social Media and Communications Compliance. He leads the oversight of the Firm’s communication policies and procedures for their traditional, bank brokerage, independent, and clearing Broker Dealer/Investment Adviser dual registrants. With more than 25 year’s industry experience, he is responsible for managing the development and implementation of a risk-based compliance program to meet federal, state, agency, legal and regulatory requirements. His team annually reviews 75,000 pieces of communications including Digital Marketing submissions from social media, mobile and e-communications. He is currently a participant on FINRA’s Public Communications Committee; and was a member of their Social Media taskforce, and participated in their BrokerCheck hyperlink working group. In addition to communication related issues, he provides guidance on tools, software, Privacy and Books and Records requirements. Ted Newton is Assistant Vice President in MassMutual US Compliance. In his 30-year career in the financial services industry, Mr. Newton has been an agent, a wholesaler, a regulator and a home office compliance officer. At MassMutual, his responsibilities include reviewing advertising for the company’s direct-to-consumer and other customer experience efforts; refining advertising review procedures to increase efficiency and consistency; and serving as industry and regulatory liaison on advertising compliance-related matters. Previously, he managed training and communications for MassMutual field and home office personnel about compliance and supervision requirements, and inspections of agencies to review their supervision and compliance policies. Prior to joining MassMutual in January 1998, Mr. Newton was a supervisor in the NASD’s Advertising Regulation Department, where he supervised a team of analysts who reviewed sales materials submitted by NASD member firms. Mr. Newton graduated from Duke University in 1984 with a double major in political science and Psychology, and got his start in the industry that year with Travelers Insurance Company and its affiliated broker/dealer.
2017 Advertising Regulation ConferenceOctober 5 – 6, 2017 | Washington, DC
Social Media and Digital Communications
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Moderator
Amy Sochard, Senior Director, FINRA Advertising Regulation
Panelists
Stephen Bard, Senior Vice President – WIM Director of Social
Media and Communications Compliance, Wells Fargo Advisors
Ted Newton, Assistant Vice President, MassMutual Financial
Group
1
Panelists
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Under the “Schedule” icon on the home screen,
Select the day,
Choose the Social Media and Digital Communications
session,
Click on the polling icon:
2
To Access Polling
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Understand how some firms have addressed the compliance and supervision considerations raised by the evolution of social media and digital communications including the rise of mobile technology;
Apply practical compliance approaches to messaging technology, the use of personal social media for brand advocacy, the adoption of third-party content via hyperlinks, and the growing use of advertising that mimics the communication channel in which it appears (also known as, “Native Advertising”); and,
Implement steps to help address data privacy and cybersecurity concerns when supervising social media and digital communications.
3
By the end of this session, you will be able to:
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
1. What is your biggest concern today in the social media space?
a. Reps embarrassing themselves or the firm with “business inappropriate” posts.
b. Reps posting false or misleading content about their securities business.
c. Reps using unauthorized social media accounts that our firm cannot supervise or retain records for.
d. Inadvertent sharing of personal information such as account numbers and investment details.
e. Cyberattack on a client or the firm using our social media.
4
Polling Question 1
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Supplements, but does not replace, Regulatory Notice
10-06 and Regulatory Notice 11-39.
Responds to recommendation for more guidance
arising from FINRA’s Retrospective Review.
Public Communications Committee provided
significant advice and assistance.
5
Regulatory Notice 17-18
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
2. Does your firm permit representatives to use instant
messages, text messages or messaging apps in
communicating either internally or with customers?
a. Yes
b. No
c. Not sure
6
Polling Question 2
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Firms must retain records of messages pertaining to
their business as such in accordance with SEA Rules
17a-3 and 17a-4 and FINRA Rule 4511.
Compliance approaches
Instant messages
Text messages
Messaging apps
BYOD considerations
7
Messaging: Regulatory Notice 17-18
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
A firm prohibits the use of text messaging for
business purposes.
How should the firm address the risk that a customer might initiate
contact with a representative via text message?
What about a personal exchange between a representative and an
acquaintance on email or social media where the acquaintance
initiates a business discussion?
8
Case Study
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
3. A rep with no outside business has an account on a business-oriented social media site. What are the firm’s responsibilities?
a. Because the rep has no OBA, the rep’s communications on the account must be considered part of the firm’s business and subject to FINRA’s communications rules.
b. Take reasonable steps to evaluate if it is a business account. If it is not, then the firm should document its review, but does not need to supervise the account for compliance with the communications rules.
c. If the firm has strong procedures, education about the difference between business and personal social media use, and annual attestations, the firm has no obligations regarding the account.
9
Polling Question 3
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
3. A rep with no outside business has an account on a business-oriented social media site. What are the firm’s responsibilities?
a. The rep's communications on the account must be supervised as part of the firm's business.
b. Evaluate if the account is part of the firm's business. If not, firm need only document its review.
c. If firm has strong procedures, education, and attestations, then no firm responsibility for account.
10
Polling Question 3
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
In a personal communication an associated person
may share or link to content that the firm makes
available that does not concern the firm’s products or
services without subjecting the communication to
FINRA Rule 2210.
Content Examples: information about the firm’s sponsorship of a
charitable event, a human interest article, an employment
opportunity, or employer information covered by state or federal fair
employment laws.
11
Personal Communications: Regulatory Notice 17-18
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
By linking to or sharing specific content posted by an
independent 3rd-party, a firm has adopted the specific content
and must ensure it complies with the communications rules.
Linked content may contain its own links (“secondary links”). A
firm is not responsible for the content available through such
secondary links provided:
The firm has no influence or control over the content accessed through the
secondary links; and,
The original linked content was not merely a vehicle for secondary links or
did not rely completely on the information available at the secondary links.
12
Hyperlinks and Sharing: Regulatory Notice 17-18
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
A firm may not have adopted content on an independent 3rd-party
website, if it posts an ongoing link to a section of the website, if:
The link is continuously available and accessible regardless of whether the
linked site contains content favorable to the firm and regardless of whether the
independent 3rd-party updates or changes its website;
The firm does not have influence or control over the independent 3rd-party
website;
The language introducing the link complies with the communications rules;
and,
The firm has not knowingly linked to false or misleading content.
13
Regulatory Notice 17-18: Ongoing Website Links
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
How should firms treat:
Hyperlinks to regulatory sites?
– Required (e.g., BrokerCheck)
– Voluntary (e.g., FINRA)
Following or liking an independent third-party website?
14
Hyperlinks
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Native Advertising: has been defined as advertising
content that matches the form and function of the
platform on which it appears.
Firms may use native advertising that is fair, balanced, not
misleading and complies with applicable communications rules.
Influencer advertising may require more scrutiny and disclosure in
order to comply.
15
Native Advertising: Regulatory Notice 17-18
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
A major financial publication runs an article on
retirement strategies. Within the article are hyperlinked
phrases, such as “plan for retirement” and “retirement
planning takes focus today” that drive to a broker
dealer’s website.
Is this Native Advertising?
Are there any disclosure requirements one way or the other?
16
Case Study
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Unsolicited 3rd-party comments on a firm’s social
media account generally are not deemed the firm’s
communication.
However, liking or sharing favorable comments will be
deemed adoption of the comments by the firm.
Testimonial disclosures
Advisers Act considerations
17
Testimonials & Endorsements: Regulatory Notice 17-18
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Scenarios: Independent 3rd-party directory publishes incorrect information
18
Correcting 3rd Party Content: Regulatory Notice 17-18
Incorrect Information The firm contacts the directory
and provides…
Is the firm
responsible for the
corrected listing?
Wrong street address,
phone number or web
address
the correct information which is
then published.
No
Incomplete description
of the firm’s products
and services
a new, more complete description
of the products and services
which is then published.
Yes
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Rule 2210 requires firms’ websites to include a readily apparent
reference and hyperlink to BrokerCheck on:
(1) the initial web page that the firm intends to be viewed by retail investors;
and,
(2) any other web page that includes a professional profile of one or more
registered persons who conduct business with retail investors.
Not required for social media and apps.
However, if an app accesses a webpage subject to the rule, the
firm must ensure the BrokerCheck link is readily apparent when
displayed.
19
BrokerCheck Disclosure: Regulatory Notice 17-18
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
Data Privacy and Protection
Cybersecurity
20
Integrating Risk Management Into Compliance
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved. 21
Live Streaming Content
• Video streams live on social media
• Afterwards, content remains as an interactive social media post
• Firm then distributes video via email, uploads it to another social network, and embeds it on its website and blog
Example: Lifecycle of a
Video Presentation
FINRA Advertising Regulation Conference | © 2017 FINRA. All rights reserved.
What does the future look
like for social media and
digital communications
compliance?
22
The Future
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 1
Social Media and Digital Communications Thursday, October 5, 2017 4:15 p.m. – 5:15 p.m. Resources FINRA
FINRA Regulatory Notice 17-18, Social Media and Digital Communications, Guidance on Social Networking Websites and Business Communications (April 2017) www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-17-18.pdf
FINRA Regulatory Notice 15-50, SEC Approves Rule Requiring Members’ Websites to Include a Readily Apparent Reference and Hyperlink to BrokerCheck (December 2015) www.finra.org/sites/default/files/Notice_Regulatory_15-50.pdf
FINRA Regulatory Notice 11-39, Social Media Websites and the Use of Personal Devices for Business Communications (August 2011) www.finra.org/sites/default/files/NoticeDocument/p124186.pdf
FINRA Regulatory Notice 10-06, Guidance on Blogs and Social Networking Web Sites (January 2010) www.finra.org/sites/default/files/NoticeDocument/p120779.pdf
Securities and Exchange Commission (SEC)
National Exam Program Risk Alert, Volume IV, Issue 5, August 7, 2017: Observations From Cybersecurity Examinations
www.sec.gov/files/observations-from-cybersecurity-examinations.pdf
IM Guidance Update, March 2014, No. 2014-04: Guidance on the Testimonial Rule and Social Media
www.sec.gov/investment/im-guidance-2014-04.pdf
IM Guidance Update, March 2013, No. 2013-01: Filing Requirements for Certain Electronic Communications
www.sec.gov/divisions/investment/guidance/im-guidance-update-filing-requirements-for-certain-electronic-communications.pdf
© 2017 Financial Industry Regulatory Authority, Inc. All rights reserved. 2
SEC Release Nos. 34-58288; IC-28351, Commission Guidance on the Use of Company Web Sites (August 7, 2008)
www.sec.gov/rules/interp/2008/34-58288.pdf
SEC Release No. 34-47806, Electronic Storage of Broker-Dealer Records (May 12, 2003)
www.sec.gov/rules/interp/34-47806.htm
Federal Trade Commission (FTC)
Native Advertising: A Guide for Business (December 22, 2015)
www.ftc.gov/tips-advice/business-center/guidance/native-advertising-guide-businesses
Commission Enforcement Policy Statement on Deceptively Formatted Advertisements (December 22, 2015)
www.ftc.gov/system/files/documents/public_statements/896923/151222deceptiveenforcement.pdf
.com Disclosures, How to Make Effective Disclosures in Digital Advertising (March 2013)
www.ftc.gov/os/2013/03/130312dotcomdisclosures.pdf
United Kingdom, Financial Conduct Authority (FCA)
Finalised Guidance FG15/4: Social media and customer communications, the FCA’s supervisory approach to financial promotions in social media (March 2015)
www.fca.org.uk/your-fca/documents/finalised-guidance/fg15-04