THE IMPACT OF REGULATIONS (I)

AM | @MackinlayEuruni

Sources. Hooman Estelami. Marketing Financial Services. New York: Dog Ear Publishing, 2006 (chapter one, P. 12); Evelyn Ehrlich & Duke Fanelli. The financial services marketing handbook. Tactics and techniques that produce results. Bloomberg, 2012, introduction (pp. 13-14).
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. Estelami: "The practice of marketing financial services is distinctly different form other marketing practices due to the dozens of regulations that rule the industry. For example [in the US], the type of content included un in a financial service advertisement is controlled and closely monitored by regulatory bodies, such as the Securities and Exchanges Commission, the Federal Trade Commission, and the departments of insurance in individual states".

. Ehrlich & Fanelli: "As if financial marketers didn't have enough dealing with the structural issues of the industry, they must also answer to a higher authority. Financial services are among the most regulated of industries, at the federal, state, and industry-watchdog level. These regultaroy constraints affect numerous marketing decisions. For example [in the US] the Financial Industry Regulatory Authority  (FINRA) must review all marketing materials created by investment companies.

A a practical level (in the case of an advertisement campaign), marketers need to plan ahead. You have to arrange for compliance and legal review of all material, and adequate time for these reviews must be factored into production schedules and launch dates. You must design disclosure language into your layout as well as allow for it in your broadcast advertising. Failure to do so will not only cost you time but also potentially thousands of dollars in new creative and production costs.

[CASE STUDY: FINRA & ADVERTISING]

Wandering through the FINRA website, I took a look at the section on Disciplinary and Other FINRA Actions for the month of June, 2012. Consider the following case:

FISN, Inc. dba First Internet Securities Network (CRD #18498, Bethesda, Maryland), submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $20,000, and required to, no later than 30 days after the acceptance of the AWC, discontinue any use of the phrase “Federally Insured Savings Network.” To the extent that the firm makes any advertising or sales literature available to the public or any customer more than 30 calendar days after the AWC has been accepted, the firm must first submit such material to FINRA for review. Any advertising or sales literature not submitted for review must be removed from the website or otherwise made unavailable to the public or any customer until after it has been submitted to FINRA for review.

The firm shall take all reasonable steps to withhold, or cause to be withheld, such material from further publication until changes specified by FINRA have been made, and such material will be revised and re-filed prior to any use, unless otherwise agreed to by FINRA. These requirements shall remain in effect for one year following the acceptance of the AWC. Unless the firm files a Uniform Request for Broker-Dealer Withdrawal (Form BDW) within 30 days after the acceptance of the AWC, the firm must file an amendment to its Uniform  Application for Broker-Dealer Registration (Form BD) to delete all references to the phrase "Federally Insured Savings Network” and certify by a letter signed by its president that it has complied with these undertakings no later than 30 days following acceptance of this AWC.

Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that its website included statements suggesting that the firm and the products it sold were federally insured, when in fact, they were not. The findings stated that the firm listed numerous types of fixed-income securities labeled CD Alternatives, suggesting that these investments had features and risks comparable to the features and risks of certificates of deposit (CDs) when they did not. The findings also stated that the firm’s website included statements regarding CDs the firm sold that were unwarranted and lacked a sound basis in fact. The firm’s website suggested that the rates the firm found and published were the safest and highest rates and best yields available when they may not have been. The findings also stated that the firm made available, both in hard copy and through its website, a brochure that contained several statements that were unwarranted and lacked a sound basis in fact regarding its products and services.
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