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Regulation and Compliance > Federal Regulation > FINRA

FINRA Issues Ghostwriting Guidance

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The Financial Industry Regulatory Authority says sales representatives for member firms should take care when using ghostwritten books and articles to market their services.

A rule established by one of FINRA’s predecessor organizations, the National Association of Securities Dealers, “prohibits false, misleading or exaggerated communications with the public and the omission of material facts or qualifications that would cause a communication to be misleading,” officials at FINRA, Washington, write in Regulatory Notice 08-27.

Some ghostwritten books, pamphlets and newspaper advice articles may violate that rule and other rules established by the NASD and FINRA’s other predecessor organization, the regulatory arm of the New York Stock Exchange, the FINRA officials warn.

FINRA member broker-dealers must supervise the communications of registered representatives, and those reps should disclose whether other individuals or entities have created publications for their use, the officials write.

If a FINRA member firm pays for a publication, article or interview featuring a rep or a rep’s byline on behalf of a rep, that communication must be clearly identified as an advertisement, the officials write.

The authorship and subsidy disclosure rules apply to:

- Pamphlets or hard-cover books about investment topics that can be bought with a rep’s name printed on the cover.

- Newspaper, magazine or Web articles that appear to be written by the rep.

- Interview-style broadcasts, Webcasts or other public appearances where it appears that an independent third party is interviewing a rep when the interview questions and answers are in fact pre-determined; or, in the case of printed interviews, where the questions and answers were created by or for the representative.

- Handouts paid for by the rep that look as if they are magazines containing articles written by or about the rep.

The publication author and subsidy disclosure rules are related to NASD and NYSE rules that prohibit firms from allowing the use of any title or designation that conveys an expertise in senior investments or retirement planning where such expertise does not exist, the FINRA officials write.

The officials note that they refer separately to NASD and NYSE rules in the notice because some FINRA member firms will be subject only to NASD rules and some both to NASD rules and to some NYSE rules until FINRA members approve a consolidated rulebook.

The FINRA notice could affect life insurers that are FINRA members and use registered reps to sell their products.


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