Quick Answer
FINRA sorts external written communications into retail, correspondence, and institutional categories; internal firm messages are excluded. Retail communications generally need prior approval, with exceptions for unchanged previously reviewed material, qualifying research, interactive forums, and nonpromotional communications. Principal approval before a FINRA filing is always required. All three categories share general content standards.
The Series 63 tests FINRA's rule on communications with the public 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 written communications directed to public or investor audiences into three categories based on who receives them and how many people receive them. A member's internal communications are outside these categories:
| 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 person (including an individual) with total assets of at least $50 million, governmental entities, FINRA member firms and their registered persons, and persons acting solely on behalf of such an investor.
- The plan route covers qualified retirement plans and qualifying 403(b) or 457 employee benefit plans with at least 100 participants, including qualifying plans aggregated for the same employer. It does not make each participant an 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 each of the three categories: retail, correspondence, and institutional communications.
- 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 (narrow carve-outs exist, such as a hypothetical illustration of mathematical principles that projects no investment's performance)
- Must give balanced treatment of risks and potential benefits; a communication cannot tout the upside while burying the risk
Some standards have narrower category scope. For example:
- 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 |
| Testimonials with the applicable required disclosures | Advice or performance testimonials that omit the required disclosures: not representative, no guarantee of future results, and paid status if more than $100 was paid |
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 | Generally yes before first use; always yes before a FINRA filing | Prior-use exceptions apply to specified communications, but a qualified registered principal must approve any communication before the member files it 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 for principal review; if they do not require review of every one before first use, they must also cover staff education and surveillance. 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.
The principal-approval rule has four important prior-use exceptions:
- Material that another member filed and received a FINRA letter stating it appears consistent with applicable standards, when the member does not materially alter it or use it inconsistently with that letter
- Qualifying research-related communications
- Retail communications posted on an online interactive forum
- Nonpromotional retail communications that make no financial or investment recommendation and do not promote a product or service
The research-related, interactive-forum, and nonpromotional exceptions remain subject to correspondence-style supervision and review. These exceptions do not remove the separate requirement for a qualified principal to approve a communication before the member files it with FINRA.
Exam Tip: Gotchas
Retail communications generally require principal approval before use, but unchanged previously reviewed material, qualifying research-related communications, online interactive forums, and nonpromotional communications have explicit prior-use exceptions. Correspondence gets supervision and review rather than prior approval, and institutional communications get written compliance procedures. Any communication the member files with FINRA still requires qualified-principal approval before filing.
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.
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During a firm's first year of FINRA membership, it generally must file a public-media retail advertisement at least 10 business days before first use. A public website ad is one example.
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A qualifying free writing prospectus already filed with the SEC is an exception: it may be filed with FINRA within 10 business days after first use.
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The one-year period is not a hard cutoff: if FINRA's Advertising Regulation Department finds that a member has departed from the rule's content standards, it can extend the pre-use filing requirement beyond the first year, in writing, for as long as it specifies.
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Excluded from FINRA's filing requirements: the rule lists many exclusions, including qualifying SEC-filed prospectuses, media-only press releases, communications previously filed with FINRA and reused without material change, qualifying independent-publisher reprints, correspondence, institutional communications, nonpromotional retail communications, interactive-forum posts, and specified research reports. The list is longer than this, so do not treat these examples as the whole set
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FINRA's Advertising Regulation Department reviews filed communications. For specified pre-use categories, such as custom fund performance rankings, the firm must withhold publication or circulation until the Department's specified changes have been made
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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
For a new FINRA member's public-media retail advertisement, remember 10 business days before first use. This is a FINRA filing deadline, separate from prior principal approval and from any filing a state Administrator requires. Correspondence and institutional communications are excluded from the routine FINRA filing requirement. Departing from the content standards can extend that filing requirement past the first year, not end it.
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.
- Retail communications generally require prior principal approval before use. Remember the four prior-use exceptions: unchanged previously reviewed material, qualifying research-related communications, online interactive forums, and nonpromotional communications. Principal approval before a FINRA filing is mandatory.
- A new FINRA member generally files public-media retail advertisements at least 10 business days before first use; that FINRA filing is separate from any state Administrator filing.
- FINRA can extend that pre-use filing requirement past the first year if the member has departed from the rule's content standards; the first year is not an automatic cutoff.