FINRA Rule 2210

FINRA Rule 2210 establishes the foundational regulatory framework governing how broker-dealers and their communicate with the public. FINRA operates as a under SEC oversight. This rule uses flexible standards based on core principles that protect retail investors while adapting to new communication technologies and market changes.

For hedge fund and investment operations professionals, Rule 2210 extends well beyond straightforward advertising compliance. Understanding this rule is essential for managing third-party promotional activities, supervising associated persons' public statements, evaluating conflicts of interest in communications, and establishing appropriate supervision systems for all communication channels. Compliance failures can result in substantial fines, restitution orders, and operational constraints that significantly impact business operations.

FINRA Rule 2210 establishes three separate communication types that don't overlap. Each type has distinct regulatory treatment. This three-part system provides the structural foundation for determining approval requirements, filing obligations, and supervision standards.

Retail communications encompass any written or electronic communication distributed to more than 25 retail investors within a 30-day calendar period. This category captures the broadest range of materials—including advertisements, sales literature, educational materials, market commentary that promotes products or services, and promotional content distributed through digital channels.

For private fund managers, retail communications carry particular significance when engaging with who may not qualify as institutional investors under the rule's definitions. Marketing materials for funds targeting through must comply with retail communication standards, including pre-use principal approval and potential filing requirements.

Correspondence includes written or electronic communications distributed to 25 or fewer retail investors within a 30-day calendar period. This category encompasses personalized client communications, targeted promotional emails, and small-distribution materials.

Private fund managers frequently rely on correspondence for investor relations activities, quarterly updates to limited partner groups, and targeted outreach to potential investors. While correspondence receives more flexible supervision requirements, firms must still maintain appropriate oversight procedures.

Institutional communications consist of materials distributed exclusively to institutional investors as defined by FINRA Rule 2210(a)(4). The definition includes banks, insurance companies, registered investment companies, , broker-dealers, and other sophisticated financial institutions with assets exceeding $50 million.

Firms sometimes believe that institutional communications may be forwarded to retail investors. When this happens, the firm must treat the material as retail communication. This applies regardless of how the firm originally intended to distribute the content. This is particularly relevant for fund marketing materials shared with institutional consultants or placement agents who may redistribute content.

FINRA Rule 2210 establishes six core content standards applicable to all communications, regardless of category. These flexible standards based on core principles provide the regulatory backbone ensuring investor protections across all communication contexts.

Communications must present information providing a sound basis for evaluating facts regarding any product or service. For alternative investment communications, this standard requires equal prominence of both opportunities and risks. Firms cannot exclude material information that would render communications misleading through its omission.

Marketing materials must present liquidity constraints, fee structures, leverage risks, redemption restrictions, and potential conflicts of interest with prominence equal to or greater than performance highlights. Regulatory enforcement consistently targets communications that emphasize benefits while minimizing risks through footnotes or technical language.

Communications cannot contain false, exaggerated, unwarranted, or misleading statements. This prohibition extends to statements the firm knows or should reasonably know contain untrue material facts, including those made through third-party intermediaries or compensated promotional relationships.

All factual claims, particularly performance assertions and strategy descriptions, must establish a reasonable basis supported by substantial documentation. For hedge funds, this requirement is particularly relevant for:

• Track record presentations and performance attribution
• Strategy capacity representations
• Risk management system descriptions
• Portfolio composition and concentration statements

Communications generally cannot predict or project investment performance or imply that past performance will recur. Limited exceptions permit mathematical illustrations that demonstrate principles without predicting actual performance.

The general prohibition on performance projections applies to retail investor communications. Current regulatory discussions continue regarding whether limited exceptions might apply to sophisticated investors, but regulators have not finalized any changes to the existing prohibition.

Communications must present information with clarity and context appropriate to the intended audience. Complex terminology requires explanation or definition, and communications targeting specific investor profiles must account for investor sophistication levels.

Firms must present risk disclosures prominently rather than concealing them in technical language or contradictory disclaimers. This is particularly important when explaining complex strategies like derivatives usage, short selling, or leverage employment.

Firms must maintain comprehensive documentation supporting all statistical tables, graphs, illustrations, performance data, and factual assertions. This requirement obligates firms to retain source documents, calculation methodologies, and underlying assumptions for all communications.

Every retail communication must receive approval from an appropriately qualified, registered principal before use or filing with FINRA. "Appropriately qualified" requires the principal to possess the necessary registration credentials for the specific product or service—for example, Series 24 registration for general securities principal approval, or specialized registrations for particular product categories.

For alternative investment managers working through broker-dealer affiliates, this requirement creates operational challenges when marketing materials reference complex strategies or structured products. The approving principal must understand both the regulatory standards and the underlying investment mechanics to provide meaningful oversight.

The rule provides several important exceptions:

• Non-promotional educational content: Materials that explain investment concepts without recommending specific products or promoting member services
• Interactive social media posts: Real-time posts in online forums avoid pre-use approval but require retroactive supervisory review
• Previously approved materials: Communications filed by another firm and approved by FINRA may be used without new principal approval
• Research reports: Materials meeting the research report definition under applicable securities regulations

While institutional communications do not require pre-use principal approval, firms must establish risk-based supervisory procedures appropriate to their business characteristics, size, and customer base. For hedge fund marketing to institutional investors, these procedures must account for the sophisticated nature of both the audience and the investment strategies being discussed.

New member firms must file widely distributed retail communications with FINRA before first use during their initial year.

Firms must file retail communications within 10 business days when they promote:

• Mutual funds and ETFs
• Structured products

• All correspondence and institutional communications
• Previously filed materials that haven't changed
• Non-promotional educational materials
• Social media posts in interactive forums
• Press releases sent only to media

Retail communications with certain features need additional disclosures:

• Mutual fund performance: Must include expense ratios and fee information
• Tax claims: Must present balanced view of tax implications
• Comparisons: Must disclose material differences between investments
• Testimonials: Must include risk disclosures and conflict information
• Firm identification: Must prominently display the member firm name

Firms must establish written supervisory procedures appropriate to their business that address approval workflows, employee training, and ongoing surveillance mechanisms. Firms must retain all communications for three years including copies with dates of first and last use, names of approving principals and approval dates, and source documentation for all factual claims and data.

Private placement communications commonly present performance metrics using various methodologies. FINRA permits certain performance presentations for ongoing programs provided they follow specified standards:

• Internal Rate of Return calculations: Firms can include IRR for programs with realized and unrealized holdings. However, calculations must follow Global Investment Performance Standards methodologies.
• Track record presentations: Must include all required additional metrics and cannot present only favorable time periods
• Gross vs. net performance: Presentations must clearly distinguish between gross and net-of-fee returns and explain the impact of fees on investor returns
• Prohibition on projections: IRR projections for new programs remain prohibited as performance predictions, even when accompanied by detailed assumptions and risk disclaimers

When hedge funds engage external promoters or direct third parties for promotional content, the communications must comply with Rule 2210 standards. This includes:

• Placement agent arrangements: Third-party placement agents use marketing materials that require approval and supervision. This applies when the fund exercises control over content.
• Industry conference presentations: Sponsored content or presentations at industry events fall under Rule 2210 when firms direct or compensate the content
• External partnerships: Compensation arrangements with external parties for promotional activities require compliance review and conflict-of-interest disclosure

While institutional communications receive more flexible treatment, the definition includes specific safeguards that affect hedge fund marketing:

• Asset thresholds: Entities must possess at least $50 million in assets to qualify as institutional investors under the rule
• Redistribution risks: Institutional materials are sometimes forwarded to retail investors later. Firms must treat such materials as retail communications under two conditions. First, if they become aware of redistribution. Second, if they should reasonably expect redistribution to occur.
• Due diligence on investor status: Firms must verify institutional status and cannot simply rely on investor representations without reasonable verification

Contemporary compliance environments require sophisticated approaches to communication oversight across all channels. Firms must implement procedures for approving and archiving communications on all platforms while detecting business communications occurring through unauthorized channels that circumvent supervisory systems.

The rule's flexible approach based on core principles provides regulatory flexibility while maintaining consistent investor protection standards. However, this flexibility requires firms to develop robust compliance frameworks that can adapt to changing business practices while ensuring continued adherence to fair and balanced communication principles.