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FINRA and Compliance In The Era of Fake News

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Written By: Tyson Kingsbury

There’s an old saying, ‘may you live in interesting times’.

We have been living now in an era of what many term ‘fake news’. Rumor, innuendo, exaggerations and misdirection are the chaff we regularly navigate, to find trusted information. With that in mind, it may be time for a reminder on living within the FINRA framework in an era where many are questioning how trustworthy their sources of financial information have become. Here are a few key guidelines regarding promotion and communication from the FINRA rules book that you may want to reacquaint yourselves with.

Fair and Balanced:

While everyone has opinions, we’re reminded that when it comes to conveying info within the confines of a Financial Advisor blog post or web page, we must deliver the facts as clearly as possible, and not have them coloured by our personal biases.

All communications must be fair, balanced and complete and not omit material information. Seems reasonable, of course. But it doesn’t hurt to be reminded of the fact that omitting key information is as harmful as an outright lie. Make sure that you air the appropriate amount of information on both sides of an issue.

False, misleading, promissory, exaggerated or unwarranted statements or claims are prohibited.

What your parents taught you still holds true. But in this case, fibbing has much bigger consequences than being sent to your room. You absolutely cannot mislead your audience with false claims and exaggerations. To do so would be to risk a disciplinary action from Finra, and could result in a formal complaint, fines or even suspensions.

Communications may not predict or project performance (with certain exceptions).

A Financial Advisor is of course in the business of doing their best to advise their clients on the best ways to take care and control of their finances. This of course doesn’t mean you get to put on the funny hat and take out the crystal ball. Predictions and prognostications are better left to the fortune tellers at the county fair. An Advisor must stick with pointing out past performances, and using their best data to evaluate risk-reward scenarios. Once again, consequences for this could be direct disciplinary actions from Finra that may result in fines, suspensions, bars or expulsion.

Related: Why Advisors Need Their Own Online Presence

Material information in a communication may not be buried in footnotes.

You can’t sneak your way to a sales win by hiding the key information a client needs in the fine print. When it comes to trust, your clients have to rely on you to keep your key information visible and easy to find.

Statements must be clear and provide a balanced treatment of risks and potential benefits.

By weighing in heavily on one side or another, you can distort the truth of a situation. An Advisor must explicitly explain things in clear language that does not confuse an issue. For example, “If a firm wishes to present a fund’s subsidized expense ratio in correspondence or retail communications, the communication must disclose whether the fee waivers or expense reimbursements were voluntary or mandated by contract, and the time period, if any, during which the fee waiver or expense reimbursement obligation remains in effect.”

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