FINRA Rule 2212

FINRA Rule 2212 sits within the 2200 Communications and Disclosures subsection of the 2000 Duties and Conflicts rules, immediately following FINRA Rule 2211's Communications with the Public About Variable Life Insurance and Variable Annuities and immediately preceding FINRA Rule 2213's Requirements for the Use of Bond Mutual Fund Volatility Ratings.

FINRA Rule 2212(a): The Definition of "Ranking Entity"

FINRA Rule 2212(a) defines the foundational term upon which the entire rule's permissible-use framework depends — for purposes of this Rule, the term "Ranking Entity" refers to any entity that provides general information about investment companies to the public, that is independent of the investment company and its affiliates, and whose services are not procured by the investment company or any of its affiliates to assign the investment company a ranking.

This three-part definition establishes independence as the central criterion for Ranking Entity status. The entity must: (1) provide general information about investment companies to the public — it must be a broadly-serving information provider, not a specialized firm providing ranking services only to a single fund family or a small group of affiliated funds; (2) be independent of the investment company and its affiliates — a ranking body cannot qualify as a Ranking Entity if it has ownership, control, or contractual relationships with the fund family whose products it ranks; and (3) have not been procured by the investment company or any affiliate to assign the investment company a ranking — even an otherwise independent entity loses Ranking Entity status if its engagement was specifically arranged by the fund family seeking a favorable ranking.

The third element of this definition is particularly significant — it prevents fund families from commissioning favorable rankings from technically-independent third parties and then using those commissioned rankings as if they carried the credibility of a genuinely unsolicited third-party assessment. 

If a fund family or its affiliate pays or otherwise arranges for a third-party entity to conduct a ranking specifically of that fund, the resulting ranking is not a Ranking Entity ranking under FINRA Rule 2212 regardless of the third party's general independence.

Well-known Ranking Entities include Morningstar, Lipper, and similar established fund evaluation services that publish independent rankings used throughout the mutual fund industry. These entities publish rankings across broad categories of investment companies on a commercially independent basis — their rankings are not commissioned by the funds they rank, and they apply their criteria consistently across a universe of funds rather than tailoring analyses to a specific fund's request.

FINRA Rule 2212(b): The General Prohibition — Permissible Sources Only

FINRA Rule 2212(b) establishes the general prohibition on the use of investment company rankings in retail communications — members may not use investment company rankings in any retail communication other than:

(1) Rankings created and published by Ranking Entities — the primary permissible source, addressing the ratings and star systems published by firms like Morningstar and Lipper that are created independently and distributed to the broad investing public.

(2) Rankings created by an investment company or an investment company affiliate but based on the performance measurements of a Ranking Entity — an important secondary category that permits fund families to create their own rankings of their funds within a broader universe, provided those rankings are based on the performance measurement methodology of an independent Ranking Entity (not on the fund family's own proprietary performance calculations). This permits, for example, a fund family to create a table showing where each of its funds ranks within the Lipper or Morningstar performance universe — provided the underlying performance data and universe definitions are those of the Ranking Entity, not of the fund family itself.

FINRA Rule 2212(c): Additional Requirements for Rankings in Retail Communications

FINRA Rule 2212(c) establishes the content, disclosure, accuracy, and currency requirements that any permissible ranking under paragraph (b) must satisfy when used in a retail communication.

The Best-Performer Headline Restriction. A headline or other prominent statement must not state or imply that an investment company or investment company family is the best performer in a category unless it is actually ranked first in the category. This restriction directly targets one of the most common sources of misleading fund advertising — headline language suggesting a fund is "#1" or "best" in its category when it actually ranks, for example, second or third in the specific category used. Where a fund is genuinely ranked first in a category, the headline may say so — but only where first place is the actual ranking, not a selected subcategory or alternative timeframe constructed to permit a "#1" claim.

Required Disclosures. Any ranking used in a retail communication must disclose: (A) the number of investment companies or, if applicable, investment company families, in the category; (B) the name of the Ranking Entity and, if applicable, the fact that the investment company or an affiliate created the category or subcategory; (C) if the ranking is based on total return or the current SEC standardized yield and fees were waived or expenses advanced during the period with a material effect on the return or yield, a statement to that effect; (D) the length of the period (or the first day of the period) and its ending date; and (E) the criteria on which the ranking is based (e.g., total return, risk-adjusted performance).

These five disclosure requirements collectively ensure that investors can evaluate the context and meaning of a ranking they encounter in a retail communication. The number of funds in the category disclosure enables investors to assess how competitive the ranking was — a fund ranked 5th out of 5 funds in its category is meaningfully different from a fund ranked 5th out of 500. The fee waiver disclosure ensures investors understand whether a ranking reflects the fund's actual performance economics or an artificially-boosted return resulting from temporary fee concessions. The period and criteria disclosures prevent members from strategically selecting favorable historical windows or opaque ranking methodologies without disclosure.

Currency Requirement. Any investment company ranking included in a retail communication must be, at a minimum, current to the most recent calendar quarter ended prior to use or submission for publication. This quarterly-currency requirement prevents members from continuing to use favorable past rankings long after newer (potentially less favorable) rankings are available. If no ranking meeting this quarterly-currency requirement is available from the Ranking Entity, the member may only use the most current ranking available from that Entity — unless using the most current ranking would be misleading, in which case no ranking from that Ranking Entity may be used at all.

Required Time Periods for Performance Rankings. Retail communications using investment company rankings based on performance data must include rankings for one-year, five-year, and ten-year periods (or for the life of the fund, if shorter), except that a retail communication need not provide the five-year or ten-year rankings if the fund has not been in existence for those periods. The requirement to show one, five, and ten-year rankings — rather than permitting members to cherry-pick a single favorable period — ensures investors see a complete picture of fund performance across multiple timeframes. If the Ranking Entity does not publish rankings for these standard periods, rankings representing short, medium, and long-term performance must be provided instead.

Yield-Based Ranking Requirements. A ranking based on yield may be based only on the current SEC standardized yield and must be accompanied by total return rankings for the required one, five, and ten-year time periods. This requirement ensures that a member cannot use a yield-based ranking (which may appear more favorable at a given moment) in isolation from the more comprehensive total return rankings that reflect the fund's overall investment performance including both income and capital appreciation or depreciation.

Investment Company Family Rankings. Retail communications may include rankings of investment company families, provided they comply with the rule. However, no retail communication for an individual investment company may provide a ranking of an investment company family unless it also prominently discloses the various rankings for the individual investment company supplied by the same Ranking Entity. This provision prevents the use of family-level rankings to obscure weak individual fund performance — a member cannot trumpet a fund family's overall ranking without simultaneously disclosing where the specific fund being marketed actually ranks within that family's rankings from the same Ranking Entity.

FINRA Rule 2212(d): Filing Requirements and the Article Reprint Exclusion

FINRA Rule 2212(d) establishes the filing requirements for retail communications using investment company rankings that contain created or unpublished categories — retail communications concerning registered investment companies that include rankings where the ranking or comparison category is not generally published or is the creation of the investment company, its underwriter, or an affiliate must be filed with the FINRA Advertising Regulation Department within 10 business days of first use or publication, with a copy of the data on which the ranking is based included in the filing.

The rule excludes from its requirements any reprint or excerpt of any article or report that is excluded from the FINRA Advertising Regulation Department filing requirements pursuant to Rule 2210(c)(7)(I) — the exclusion for reprints of independent third-party articles. A reprint of a magazine article that includes an investment company ranking need not separately comply with Rule 2212's requirements if it qualifies as an excluded article reprint under Rule 2210's framework, reflecting that the editorial independence of the publication that produced the article provides a quality-and-accuracy assurance comparable to the independence FINRA Rule 2212's Ranking Entity definition seeks to ensure.

FINRA Rule 2212's Position Within the Communications Framework

FINRA Rule 2212 operates within FINRA Rule 2210's general communications-with-the-public framework — FINRA Rule 2210 establishes the foundational standards (including the prohibition on false, exaggerated, unwarranted, or misleading statements) and filing requirements applicable to all retail communications, while FINRA Rule 2212 adds investment-company-ranking-specific requirements supplementing those general standards. A retail communication that violates FINRA Rule 2212 — for example, by using a ranking from a non-Ranking Entity source without the required disclosures — simultaneously violates FINRA Rule 2210's general standards against misleading communications.

The Series 7 content outline's explicit listing of FINRA Rule 2212 as a covered rule confirms that exam candidates are expected to understand not merely the general communications principles of FINRA Rule 2210 but the specific ranking-use requirements FINRA Rule 2212 establishes for investment company retail communications — a product category that registered representatives encounter regularly in the context of mutual fund sales.

Connection to FINRA Rules 2210, 2211, 2213, 2214, 2215, 2216, and 3110

FINRA Rule 2212 connects directly to FINRA Rule 2210 — as the specialized supplement to Rule 2210's general retail communications standards, with Rule 2210's filing requirements and false-statement prohibitions providing the broader framework within which Rule 2212's specific ranking requirements operate. It connects to FINRA Rule 2211 — the immediately preceding rule addressing variable life insurance and variable annuities communications, both Rules 2211 and 2212 being product-specific supplements to Rule 2210's general framework. It connects to FINRA Rule 2213 — the immediately following rule addressing bond mutual fund volatility ratings, another product-specific communications supplement. It connects to FINRA Rules 2214, 2215, and 2216 — the other product-specific communications supplements in the same 2200 Communications and Disclosures subsection, all adopted via the same SR-FINRA-2011-035 filing. It connects to FINRA Rule 3110 — whose supervisory requirements must address the investment company ranking advertising compliance obligations Rule 2212 establishes, including reviewing retail communications containing fund rankings for compliance with Rule 2212's Ranking Entity, disclosure, currency, and required-period requirements.

Examination Relevance and Key Takeaways

FINRA Rule 2212 is tested on the Series 7 and Series 24 examinations as the investment company rankings retail communications framework — appearing explicitly in the Series 7 content outline as a covered rule under the communications and disclosures topic area.

The key points to retain are these: FINRA Rule 2212(a) defines a Ranking Entity as an entity providing general investment company information to the public that is independent of the investment company and has not been procured by the investment company to provide the ranking; FINRA Rule 2212(b) permits investment company rankings in retail communications only from Ranking Entities or from fund-family-created rankings based on Ranking Entity performance measurements; FINRA Rule 2212(c) requires that rankings in retail communications satisfy: a best-performer-headline prohibition (only first-place funds may be described as best), five mandatory disclosures (number of funds in category, Ranking Entity name, fee waiver disclosure if material, period length and ending date, and ranking criteria), a quarterly-currency minimum, one/five/ten-year period requirements for performance rankings (with short/medium/long-term alternatives if standard periods are unavailable from the Ranking Entity), yield-based rankings accompanied by total return rankings, and individual fund rankings accompanying any investment company family ranking from the same Ranking Entity; the article reprint exclusion applies where a reprint qualifies under Rule 2210(c)(7)(I); and the rule was adopted via SR-FINRA-2011-035, transferring NASD IM-2210-3 into the Consolidated FINRA Rulebook, effective February 4, 2013.