A promotional message can be accurate sentence by sentence and still mislead a customer. Its audience, missing facts, delivery method and review history all matter.
When you describe an investment, customers need enough information to judge both its appeal and its risks. A broker-dealer is a firm that conducts securities transactions for customers or its own account. As its agent, you represent the firm when communicating about securities business. Your correspondence and advertising therefore create obligations for both you and the firm.
Under §101(2) of the 1956 Uniform Securities Act, you cannot make material misstatements or omit material facts necessary to prevent misleading impressions. A material fact is information important to an investor's decision. The test considers the circumstances and the overall message, including what your words lead the reader to believe.
For example, advertising an investment's income while concealing a substantial risk of losing principal is not balanced. Principal here means the money invested. Every stated income figure might be correct, yet the omitted risk makes the communication misleading.
Common mistakes
- Stopping the count at month-end. A September email and an October email can fall within the same 30-calendar-day period; 25 + 1 = 26 triggers retail classification.
- Confusing filing with principal approval. A §403 exception does not excuse the firm's review duties, and the section supplies no universal advance-filing deadline.
- Treating a disclaimer as permission. “Past results may differ” does not make a promised 12% future return permissible.
Bottom line
- Correspondence and advertising must be fair, balanced and free of misleading statements or material omissions.
- Section 403 permits state filing requirements, with exceptions for Section 402 exempt securities or transactions and federal covered securities; antifraud duties continue.
- Correspondence reaches 25 or fewer retail investors within any 30 calendar days; retail communications reach more than 25.
- Retail communications generally need principal approval before use or filing, whichever occurs first; correspondence requires supervisory review.
Exam shortcut
First identify what the question asks: content, classification, approval, filing or retention. An exception addressing one issue rarely answers the others. Circle the audience and the rolling period before choosing correspondence. For public internet content, look for access restrictions instead of visitor statistics. When two dates appear, put approval before the earlier filing or use date. When a state filing deadline appears without a rule or order, scrutinize it.
The full lesson (about 3,317 words, 22 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- G17
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