Getting Familiar with SEC Telemarketing Rules

Many firms use telemarketing as a way to reach their customers. An often criticized approach, it is also highly effective in getting people to engage in conversation which is the first step to closing a sale. It is important for companies involved at any level in the sale of securities, however, to know that the Securities and Exchange Commission (SEC) has very stringent rules that they require be followed when cold calling prospective customers. With governing agencies like Financial Authority Regulatory Authority (FINRA) paying close attention, it behooves any cold caller to follow the rules.

There are restrictions placed on the time a cold caller may call someone at their residence.

The time, between the hours of 8:00am and 9:00pm, does not apply to calls to a work number or to people who have previously given the vendor permission to call them. As a general rule of thumb once a relationship of any sort is established with a client, it is always a good idea to get written permission to call them at their home, as this prevents any confusion and potential liability with either FINRA or the SEC’s telemarketing rules.

The Federal Trade Commission (FTC) is another agency that is intimately involved in regulating calls to consumers.

The Do Not Call Registry is available to any consumer and they may put their name on it at any time. Once a consumer has placed their name on the do not call list, vendors are required to take their name out of the database and not call them again. During the course of a cold call a consumer may request that they be placed on a company’s “do not call” list and the FTC requires compliance. There are exceptions and loopholes to this regulation, including calls from a friend or acquaintance, but it is far more prudent for a company to simply lose the contact than risk fines or worse from the regulators. When you make a call, the consumer may still request to be put on the do not call list and it is equally as binding.

Once the telemarketer has the consumer on the phone, it is required that they tell the consumer the following information promptly.

The caller’s name, their firm’s name, an address or telephone number for the firm, and that the purpose of the call is to sell you an investment. These disclosures are mandatory and should be made in a clear and concise manner, checking for understanding so that there is no confusion on the part of the consumer that could lead to a FINRA, SEC, or FTC complaint at a later date. Many companies make a habit of recording telemarketing calls for exactly this reason, so that they can demonstrate compliance with the requirements.

Brokers, telemarketers, investment advisors, and anyone else selling an investment cannot take money out of a consumers account without written permission. Authorization can come in the way of a form or a signed check, but money cannot change hands for an investment until the consumer has given that written permission. If a consumer requests written clarification to their questions or more information in the investment, the company selling the investment is required to comply before taking any money or enrolling the consumer in any programs.

Finally it is critical that telemarketers tell the truth when soliciting for investment over the phone, or at any time. The slightest exaggeration about any part of the investment opportunity by an overzealous telemarketer is considered a lie and a breach of Federal and State securities law.

Telemarketing is an effective way to get in front of customers, and having taken the proper precautions is advisable for most firms. The challenge is to ensure that all the sales staff are following the laws set out by the various agencies and for the company to have safeguards and procedures to ensure compliance.

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