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

Answer: B) A written offer of the securities other than the statutory prospectus, used under SEC conditions such as a required legend

A free writing prospectus is a written offer other than the statutory prospectus. It may be used only under SEC Rules 164 and 433, which set conditions such as a legend, prospectus delivery or a hyperlink, filing by the date of first use for issuer FWPs, and record retention.

• AIncorrect. This describes the preliminary ('red herring') prospectus, which is a form of the statutory prospectus filed as part of the registration statement. An FWP is a written offer other than the statutory prospectus.
• BCorrect. Under SEC Rules 164 and 433, an FWP is a written offer other than the statutory prospectus. It must carry the required legend, and for some issuers it must be accompanied or preceded by the statutory prospectus (a hyperlink can satisfy this for electronic FWPs). Issuer FWPs must generally be filed with the SEC no later than the date of first use, and FWPs that aren't filed must be kept for three years.
• CIncorrect. The final prospectus is the statutory prospectus that is part of the registration statement. An FWP is separate offering material used alongside it, not in its place.
• DIncorrect. A pre-effective amendment changes the registration statement itself. An FWP is not part of the registration statement; it is separate written offering material.

Answer: B) Consider the fund's investment objectives, risks, charges and expenses, and read the prospectus carefully

A Rule 482 (omitting prospectus) ad must tell investors to consider the fund's investment objectives, risks, charges and expenses, and to read the prospectus carefully before investing.

• AIncorrect. Rule 482 points investors to the prospectus (and summary prospectus) and to where they can get it. The annual shareholder report isn't the document the required statement names.
• BCorrect. Rule 482(b)(1) requires the ad to tell investors to consider the fund's investment objectives, risks, charges and expenses before investing. It must also say that the prospectus contains this and other information, explain where to get a prospectus, and state that it should be read carefully before investing.
• CIncorrect. A Rule 482 ad is an 'omitting prospectus,' and no SAI has to accompany it. The required statement directs investors to the prospectus, not the SAI.
• DIncorrect. Rule 482 has its own disclosure rules for any performance data an ad includes, but an index comparison isn't part of the required statement. The required statement covers objectives, risks, charges and expenses, and reading the prospectus.

Answer: B) 10 days before use

• AIncorrect. Pre-filing is required.
• BCorrect. New members pre-file for one year.
• CIncorrect. Pre-filing is required.
• DIncorrect. Filing is with FINRA.

Answer: A) A retail communication

• ACorrect. It needs principal approval before use.
• BIncorrect. Scripts used with the public are communications.
• CIncorrect. Broad use makes it retail.
• DIncorrect. It is regulated.

Answer: C) It must be supervised and reviewed in the same manner as correspondence

Interactive social media posts are retail communications that need no principal pre-approval or filing, but the firm must supervise and review them the way it reviews correspondence.

• AIncorrect. Retail communications posted in an online interactive electronic forum are excepted from the principal pre-use approval requirement.
• BIncorrect. Retail communications posted in an online interactive electronic forum are excluded from the FINRA filing requirements.
• CCorrect. The pre-approval exception applies on the condition that the firm supervises and reviews such posts like correspondence under Rule 3110(b) and Supplementary Material .06–.09.
• DIncorrect. Interactive posts are retail communications. The content standards still apply, and the firm must supervise them.

Answer: C) Correspondence

• AIncorrect. That goes only to institutions.
• BIncorrect. That reaches more than 25 retail investors.
• CCorrect. It needs review under firm procedures, not pre-approval.
• DIncorrect. That is a different category.

Answer: A) Their name, the firm's name, the firm's phone number or address, and that the call's purpose is to solicit securities business

FINRA Rule 3230 requires a cold caller to give their own name, the firm's name, a telephone number or address where the firm can be reached, and a statement that the call's purpose is to solicit securities business.

• ACorrect. FINRA Rule 3230(d)(4) requires the caller's name, the member's name, a telephone number or address where the member can be contacted, and a statement that the purpose of the call is to solicit the purchase of securities or a related service.
• BIncorrect. Rule 3230 does not require the caller to give a CRD number or any financial information about the firm, such as net capital.
• CIncorrect. Rule 3230 does not require callers to state where they are registered or to announce that the call is recorded. It does require stating that the call's purpose is to solicit securities business, and option c leaves that out.
• DIncorrect. SIPC status, BrokerCheck and license disclosures are not among the Rule 3230 caller identification requirements. Option d also leaves out the caller's own name and the purpose of the call.

Answer: A) The rating reflects information current to at least the most recently completed calendar quarter and is accompanied by the required disclosures

FINRA Rule 2213 allows bond mutual fund volatility ratings in retail communications only if the rating is current to at least the latest completed calendar quarter and comes with the required disclosures. The rating must also come from an independent third party, rely only on objective factors, and must not be called a 'risk' rating.

• ACorrect. Rule 2213 requires the most recently available rating, current to at least the most recently completed calendar quarter before use, plus disclosures such as the issuer's name, the rating's date, a methodology website, and a narrative description of the rating.
• BIncorrect. Rule 2213 permits these ratings only if the rating does not identify or describe volatility as a 'risk' rating.
• CIncorrect. A bond mutual fund volatility rating must be issued by an independent third party, not by the fund's adviser.
• DIncorrect. The rule requires the criteria and methodology to be based exclusively on objective, quantifiable factors.

Answer: A) Be fair and balanced, giving a sound basis to evaluate the facts

• ACorrect. Benefits and risks must both be shown.
• BIncorrect. Risks must be shown.
• CIncorrect. Promises are prohibited.
• DIncorrect. The firm must be named.

Answer: C) 3 years

Rule 2210(b)(4) adopts the SEA Rule 17a-4(b) retention period for retail communications: at least three years, with the first two years easily accessible.

• AIncorrect. Rule 2210 ties retention to SEA Rule 17a-4(b), which requires at least three years, not one.
• BIncorrect. Six months is not a retention period under Rule 2210 or SEA Rule 17a-4(b). Records of retail communications must be kept for at least three years.
• CCorrect. Rule 2210(b)(4) requires retail communications to be kept for the period in SEA Rule 17a-4(b): at least three years, with the first two years in an easily accessible place. The record must include the dates of first use and, if applicable, last use.
• DIncorrect. The required period is at least three years under SEA Rule 17a-4(b). Ten years is much longer than the rule requires.