Quick Answer
FINRA sorts every broker-dealer communication into three categories by audience size: retail communication (more than 25 retail investors in 30 days), correspondence (25 or fewer), and institutional communication (institutional investors only). Only retail communications need prior principal approval. All three categories share the same fair-and-balanced content standard, and filing with FINRA applies mainly to retail communications.
The Series 63 tests FINRA's federal communications rule directly, not just the state-law overlay. Categorize first, then apply the matching approval and filing rule.
How Does FINRA Classify a Communication?
FINRA sorts every written (including electronic) communication into three categories based on who receives it and how many people receive it:
| Category | Definition | Threshold |
|---|---|---|
| Retail communication | Distributed or made available to more than 25 retail investors within any 30 calendar-day period | > 25 retail investors / 30 days |
| Correspondence | Distributed or made available to 25 or fewer retail investors within any 30 calendar-day period | 1-25 retail investors / 30 days |
| Institutional communication | Distributed or made available only to institutional investors (not a member's internal communications) | Institutional investors only |
- A retail investor is anyone who is not an institutional investor.
- An institutional investor includes banks, savings institutions, insurance companies, registered investment companies, registered investment advisers, any entity with total assets of at least $50 million, governmental entities, employee benefit plans with at least 100 participants, FINRA member firms, and persons acting solely on behalf of any such institutional investor.
- A firm may not treat a communication as institutional if it has reason to believe the communication (or any excerpt) will be forwarded or made available to a retail investor. A firm cannot dodge retail-communication treatment just by addressing something to an institutional audience.
Exam Tip: Gotchas
Correspondence and retail communication both go to retail investors. The only difference is the headcount within a rolling 30-day window: 25 or fewer is correspondence, more than 25 is retail communication. Ten people this week plus 20 different people next week, within the same 30 days, adds up to 30 total retail investors, which makes the whole thing a retail communication.
Do the Content Standards Differ by Category?
Mostly no. The core content standards apply to every communication, whether retail, correspondence, or institutional:
- Must be fair and balanced and provide a sound basis for evaluating the facts
- Must rest on fair dealing and good faith
- Must not contain false, exaggerated, unwarranted, promissory, or misleading statements or claims
- Must not omit a material fact or qualification that would make the communication misleading
- Must not predict or project performance, imply past results will recur, or make exaggerated claims
- Must give balanced treatment of risks and potential benefits; a communication cannot tout the upside while burying the risk
Two narrower standards do NOT reach every category:
- Member-firm identification (naming the firm, or the relationship of the person to the firm) applies only to retail communications and correspondence, not institutional communications
- Financial-interest disclosure when recommending a security applies only to retail communications, not correspondence or institutional communications
| Permitted | Prohibited |
|---|---|
| Historical performance with appropriate disclaimers | Predicting or projecting future performance |
| Balanced discussion of risks and benefits | Emphasizing benefits while omitting or minimizing risks |
| Factual statements about securities | Exaggerated, unwarranted, or promissory claims |
| Clearly identified testimonials with disclosures | Undisclosed paid testimonials |
Exam Tip: Gotchas
A favorite exam trap suggests the general content standards apply only to retail communications. They apply to all three categories, including correspondence and institutional communications. But do not over-extend that: member-name identification and recommendation-related financial-interest disclosure are narrower and skip institutional communications (and financial-interest disclosure skips correspondence too).
Which Communications Need Principal Approval Before Use?
| Category | Principal approval required? | Details |
|---|---|---|
| Retail communication | Yes, before first use or filing | A qualified registered principal must approve it before the communication is used or filed with FINRA |
| Correspondence | No prior approval | Subject to the firm's ordinary supervisory review and surveillance procedures for correspondence |
| Institutional communication | No prior approval | Firm must have written procedures covering staff education, surveillance, and review; principal approval is not mandated before use |
Correspondence and institutional communications skip prior approval, but the firm still has to supervise both through written procedures.
Exam Tip: Gotchas
"Principal approval before use" attaches only to retail communications. Correspondence gets supervision and review, not prior approval. Institutional communications get written compliance procedures, not prior approval either.
Which Communications Must a Firm File with FINRA?
Filing obligations fall mainly on retail communications. The timing depends on the firm's membership tenure and the product involved, and Series 63 does not require memorizing each filing window.
- Excluded from FINRA's routine filing requirement: prospectuses filed with the SEC, press releases available only to media, reprints of previously filed material, correspondence, institutional communications, and research reports meeting specified criteria
- FINRA's Advertising Regulation Department reviews filed communications and can require changes or a stop to further use
- FINRA filing is separate from a communication's principal approval, and any FINRA filing is independent of a filing a state Administrator may require
Exam Tip: Gotchas
Filing falls mainly on retail communications. Correspondence and institutional communications are excluded from this routine filing requirement, and a FINRA filing is separate from any filing a state Administrator requires.
What Should You Check on Exam Day?
- Classify by headcount first: more than 25 retail investors in 30 days is retail communication, 25 or fewer is correspondence, institutional investors only is institutional communication.
- The general fair-and-balanced content standards apply to all three categories, but member-name identification and recommendation-related financial-interest disclosure are narrower and do not reach every category.
- As a general rule, only retail communications require prior principal approval before use or filing; correspondence and institutional communications require supervision, not prior approval.
- Filing falls mainly on retail communications; correspondence and institutional communications are excluded, and a FINRA filing is separate from any state Administrator filing.