Investment Company and. Variable Contracts Products Principals (Series 26) Practice Exam

For what type of retail communications must an exception be made regarding custom rankings before first use?

1. Corporate communications

2. Marketing materials

3. Registered investment companies

4. General advertisements

The correct answer is: Registered investment companies

Custom rankings in retail communications pertain to the rankings and performance metrics that are often utilized to compare different investment options. When it comes to registered investment companies, there are specific regulatory requirements that must be adhered to before they can be used in retail communications. For registered investment companies, the rules set forth by the Financial Industry Regulatory Authority (FINRA) require that any custom rankings must be supported by a third-party source or must be accompanied by a disclosure about their limitations and the fact that they are not derived from a standardized method of ranking. This requirement ensures that the information presented is fair, balanced, and not misleading to investors who are evaluating their options. In this context, while other types of retail communications such as corporate communications, marketing materials, and general advertisements may not have the same stringent requirements regarding custom rankings before first use, registered investment companies are treated differently due to the specific nature of the products and the heightened need for investor protection. This ensures transparency and helps potential investors make more informed decisions based on reliable comparisons.