FINRA Series 7Seeks Business for the Broker-DealerEasy
A registered representative is preparing a sales letter to be sent to 15 existing retail clients. The letter discusses current market conditions and recommends a specific large-cap growth mutual fund. The representative also includes a personalized note in each letter, referencing their previous conversations. Under FINRA rules, how is this communication classified and what are the supervisory requirements?
- AIt is a retail communication, requiring principal approval prior to use and possible FINRA filing.
- BIt is considered an internal memo and has no specific FINRA filing or approval requirements.
- CIt is correspondence, requiring principal approval or review, but no FINRA filing.
- DIt is institutional communication, requiring principal approval or review, but no FINRA filing.
Show answer & explanationAnswer & explanation
Correct answer: C. It is correspondence, requiring principal approval or review, but no FINRA filing.
A communication sent to 25 or fewer retail investors within any 30-calendar-day period is classified as correspondence. Correspondence requires principal approval or review, but not FINRA filing.
Why the other options are wrong
- A. Retail communication applies to 25+ retail investors; this is only 15. Filing is not required for correspondence.
- B. This is a communication with clients, not an internal memo, and therefore has supervisory requirements.
- D. Institutional communication is for institutional investors, not retail clients. The number of recipients is also incorrect for this classification.
FINRA Correspondence
Any written or electronic communication distributed to 25 or fewer retail investors within any 30-calendar-day period.
- Maximum of 25 retail investors.
- Must be approved by a principal prior to use or reviewed AFTER use, as per firm's WSPs.
- No FINRA filing required for correspondence.
Memory trick: Correspond with 25 or less, Retail is more, Institutional is for Pros.