FINRA Series 7Seeks Business for the Broker-DealerMedium
A broker-dealer's institutional sales desk sends a market outlook piece exclusively to registered investment advisers and banks with over $50 million in assets. Under FINRA rules, this institutional communication:
- AMust be filed with FINRA's Advertising Regulation Department within 10 business days of first use
- BMust be approved by a principal before each use, same as retail communications
- CDoes not require prior principal approval but must be supervised through written procedures, including periodic spot-checking
- DIs exempt from all supervisory review because institutional investors are considered sophisticated
Show answer & explanationAnswer & explanation
Correct answer: C. Does not require prior principal approval but must be supervised through written procedures, including periodic spot-checking
Institutional communications are exempt from the prior principal approval requirement, but firms must establish written supervisory procedures, including a system for reviewing the communications, which may include post-use spot-checking rather than pre-approval of every piece.
Why the other options are wrong
- A. Institutional communications are not subject to FINRA filing requirements.
- B. Institutional communications specifically do not require prior approval before each use.
- D. No communication is fully exempt from supervision; firms must still have reasonable procedures.
Institutional Communication Supervision
Communications distributed solely to institutional investors do not need prior principal approval but must be covered by written supervisory procedures that may include spot-checking.
- Institutional investor generally has $50 million+ in assets or is a qualifying entity (bank, RIA, etc.).
- No prior approval requirement, unlike retail communications.
- Firms must train staff and periodically review a sample of communications.
Memory trick: Institutions get trust, but firms still spot-check the fine print.