Seeks Business for the Broker-Dealer from Customers and Potential Customers — Series 6 practice questions

A registered rep wants to place an unsolicited phone call to a customer who opened an account with the firm eleven months ago but has never received a sales call. Under FINRA Rule 3230, must the rep first check the firm's internal do-not-call list and the National Do-Not-Call Registry?

1. No — an existing business relationship with the firm exempts the call from DNC screening
2. Yes — DNC screening is required for every call regardless of any prior account relationship
3. No — only calls to prospects who have never transacted with the firm require screening
4. Yes — but only the National Registry must be checked, not the firm's internal list

Answer: A — No — an existing business relationship with the firm exempts the call from DNC screening

A) Correct: an existing business relationship with the firm is a recognized exemption from DNC list-checking requirements. B) Overstates the rule — the EBR exemption exists precisely to avoid blanket screening of existing customers. C) Reverses the logic: prospects with NO relationship require screening, not existing customers. D) Both the firm's internal list and the National Registry are relevant when screening applies, but here neither applies because of the EBR exemption.

A rep sends a market commentary newsletter to 40 retail prospects in one week. How is this communication classified under Rule 2210?

1. Correspondence, because it discusses market conditions rather than products
2. Institutional communication, because it discusses market-wide trends
3. Exempt communication, because newsletters are not covered by Rule 2210
4. Retail communication, because it reaches more than 25 retail investors in 30 days

Answer: D — Retail communication, because it reaches more than 25 retail investors in 30 days

D) Correct: distribution to more than 25 retail investors within 30 calendar days makes this a retail communication, regardless of topic. A) Correspondence is capped at 25 or fewer retail recipients in 30 days; this newsletter exceeds that. B) Institutional communication requires an institutional-investor audience, not retail prospects. C) Newsletters referencing the firm's services fall squarely within Rule 2210's scope.

Which is a 'recommendation' triggering Rule 2111 and Reg BI?

1. A firm-wide market commentary emailed to all clients
2. A specific fund switch suggestion for the customer
3. A generic educational seminar on retirement planning
4. A neutral list of family funds with only fact sheets

Answer: B — A specific fund switch suggestion for the customer

A) Firm-wide commentary is generally not a rec. B) Correct — Personalized action suggestions are recommendations. C) Generic education is not a rec. D) Neutral lists are generally not recs.

A firm's WSPs allow registered reps to send routine correspondence to existing clients without prior principal sign-off, relying instead on periodic sampling. Is this approach consistent with FINRA rules?

1. No — all written communications require prior approval regardless of recipient count
2. Yes — correspondence may be supervised through risk-based post-use review
3. No — correspondence must always be pre-approved by two principals
4. Yes — but only for communications sent to fewer than 5 clients per year

Answer: B — Yes — correspondence may be supervised through risk-based post-use review

B) Correct: correspondence to 25 or fewer retail investors in 30 days can be supervised via a risk-based system, including sampling, rather than universal pre-approval. A) Overstates the rule — retail communications need pre-approval, but correspondence has more flexible supervision. C) Two-principal review isn't a general requirement. D) There's no numeric client cap tied to the risk-based review option.

A satisfied client agrees to appear in a firm's retail communication praising a specific fund, and the firm pays her a small honorarium. What must the ad disclose?

1. Nothing, since testimonials from real clients need no special disclosure
2. Only the client's full legal name and city of residence
3. That the client is a shareholder of record as of the ad's print date
4. That compensation was paid and that her experience may not be representative

Answer: D — That compensation was paid and that her experience may not be representative

D) Correct: paid testimonials must disclose compensation and that the experience is not necessarily representative of other clients. A) Testimonials are specifically subject to disclosure requirements. B) Name/city disclosure isn't the required substance. C) Shareholder-of-record status isn't a required testimonial disclosure.

Insider trading violations arise under:

1. The Investment Company Act of 1940 alone as source
2. FINRA Rule 2210 on communications with the public
3. Section 10(b) and Rule 10b-5 of the '34 Act
4. State blue-sky laws only, not federal statutes today

Answer: C — Section 10(b) and Rule 10b-5 of the '34 Act

A) '40 Act governs investment companies. B) Rule 2210 covers communications. C) Correct — 10(b) and 10b-5 are the primary insider-trading provisions. D) Federal statutes apply too.

A rep is interviewed live on a local television program about mutual fund investing basics. Which statement about this interview is MOST accurate?

1. It requires FINRA filing 10 business days before airing
2. It is treated as institutional communication because it airs publicly
3. It requires principal pre-approval because it reaches many viewers
4. It is exempt from prior approval but must still meet fair-and-balanced content standards

Answer: D — It is exempt from prior approval but must still meet fair-and-balanced content standards

D) Correct: live public appearances are exempt from prior written approval, but the fair, balanced, non-misleading content standard and post-use supervision still apply. A) Public appearances aren't subject to the retail-communication filing requirement the way pre-scripted ads are. B) Public television broadcasts are not institutional communications. C) Public appearances are specifically exempt from pre-approval even though they reach a broad audience.

A retail communication states 'Ranked #2 among all growth funds' without further detail. What is deficient about this claim under Rule 2210?

1. It omits the ranking entity, category, time period, and criteria used
2. It fails to include the fund's ticker symbol
3. It cannot legally use numerical rankings under any circumstances
4. It must instead express the ranking as a percentile rather than a number

Answer: A — It omits the ranking entity, category, time period, and criteria used

A) Correct: ranking claims must disclose who performed the ranking, the specific category, the period covered, and the criteria, or the claim is misleading by omission. B) Ticker symbols aren't the compliance issue here. C) Rankings are permitted when properly sourced and disclosed. D) There's no requirement to convert a numeric rank into a percentile.

A newly FINRA-member firm distributes a retail communication about its mutual fund offerings during its first year of membership. What is the general filing expectation?

1. No filing is required during the first year
2. Filing is required only if the SEC specifically requests it
3. Filing with FINRA is generally required before or shortly after first use during the first year
4. Filing is required only after the firm's fifth year of membership

Answer: C — Filing with FINRA is generally required before or shortly after first use during the first year

C) Correct: new member firms are generally subject to a filing requirement (commonly 10 business days before first use) for retail communications during their first year. A) The first year is precisely when the heightened requirement typically applies. B) Filing is a standing requirement, not contingent on an SEC request. D) The requirement applies early in membership, not after five years.

FINRA Rule 2210 categorizes communications as:

1. Advertising, sales literature, and correspondence
2. Public, private, and confidential communications
3. Digital, print, and in-person communications only
4. Retail, correspondence, and institutional communications

Answer: D — Retail, correspondence, and institutional communications

A) That was the pre-2013 category scheme. B) Those are not FINRA categories. C) That is a channel taxonomy, not a rule. D) Correct — Those are the three categories under Rule 2210.

What is FINRA Rule 2210 (Communications with the Public)?

Categorizes communications as Retail Communication, Correspondence, or Institutional Communication, with specific approval, filing, and content standards.

What language is prohibited in mutual fund advertising?

Predictions/projections of future performance, exaggerated claims, comparisons that aren't fair/balanced, and any misleading statements about a fund's risks or features.

What must a firm retain from a public prospecting seminar?

Attendee sign-in records, the seminar script or presentation materials (approved as a retail communication), and evidence of principal approval if the content promotes specific products.