The Financial Industry Regulatory Authority recently published Regulatory Notice 19-31 (the Notice), responding to questions about how members can comply with FINRA's public communication rules (the Communication Rules) when communicating with customers using electronic media, while ensuring that presentations are fair and balanced. The Notice is an interesting read because of its emphasis on providing simpler, more focused disclosure in public communications, rather than the detail-laden boilerplate sometimes seen in broker-dealer advertising and communications. FINRA's goal is to facilitate simplified and more effective disclosures that are more interesting and informative for investors.

The responses and examples in the Notice are not intended to suggest exclusive means for addressing these issues and do not create new requirements. They simply clarify what may be acceptable under current FINRA rules. They also do not address or interpret SEC or other federal or state regulations.

Noting that the Communication Rules are intended to ensure that communications are fair and balanced, and that investors do not receive misleading information, the Notice acknowledges that there are many new and different approaches for achieving this goal as technology continues to transform the means of communication. The Notice encourages firms to consider how best to convey relevant information to investors and responds to questions regarding approaches for making disclosures in electronic media more compelling.

It also provides examples of communications that address the disclosure requirements in creative new ways. Explaining that advances in communication technology allow a broker-dealer to customize how information is provided and the recipient to customize that information according to his or her needs and interests, FINRA welcomes innovative design techniques that can help investors better understand a broker-dealer's products and services.

FINRA acknowledges that disclosures in marketing materials have become very extensive and suggests that not all of those disclosures may be required. Instead, FINRA encourages its members to be "precise and succinct" in explanations and disclosures. While additional information beyond what is required by the Communication Rules may not be objectionable, FINRA does state that the additional information must not inhibit the reader's understanding of the required information. According to FINRA, boilerplate that includes information irrelevant to the marketing message of the communication, or is added for purposes not related to compliance with disclosure rule requirements (for example, disclaimers or disclosures regarding business relationships or intellectual property matters) can detract from the impact of the information needed to understand the product or service. FINRA therefore encourages members to consider how to direct investors to the information required for a fair and balanced communication. To illustrate this point, the Notice provides an example of boilerplate disclosure that makes up more than half the communication, even though the only information required for Communications Rule compliance is found in the last two sentences. FINRA cautions that in such a case, the other information may detract from the presentation of the required information.

The Notice also explains that while the Communication Rules require communications to be fair and balanced, they do not require exhaustive lists of all possible risks and warnings possibly associated with a product or service. According to FINRA, information about risks, costs or drawbacks is more effective when it relates to the benefits the communication is promoting. It is not necessary to disclose risks, costs or other drawbacks in a communication that are unrelated to its content. Moreover, disclosures that are integrated into the body of a marketing message or other communication do not need to be as extensive as disclosures presented in a separate footnote or disclaimer. Instead, integrating disclosures into the message can facilitate shorter, more relevant disclosure. And, because readers may overlook or ignore separate descriptions of risks when they are bundled with other disclosures, providing important information in the body of the communication can improve understanding. FINRA encourages broker-dealers to consider whether information traditionally provided in footnotes and disclaimers can be incorporated in the message.

Finally, with respect to disclosures in educational materials, reference resources and other non-promotional communications, FINRA notes that the extent of required disclosure depends on the type of communication and how it is used in the sales process. While promotional communications that discuss the benefits of particular products, types of products, or services require balanced discussions of risks and drawbacks, non-promotional communications may not require the same level of detail.

Moreover, reference resources, websites, apps and other resources that do not promote specific products or services, but only provide information to assist investment decisions, and which investors must access and interact with to see that information, might need little or no disclosure under FINRA rules.

Finally, post-sale communications that discuss the purchased product, such as changes to a portfolio or information about how a product responded to changes in market conditions, generally do not require the same extent of disclosure as pre-sale communications unless they recommend additional purchases or other products.

The Notice states that FINRA welcomes the opportunity to consult with broker-dealers about the use of innovative design techniques in marketing materials, ways to make communications more interesting and informative, and it how it can work together with its member firms to improve the effectiveness of disclosure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.