Quick Answer
An institutional account is defined by who holds it, not by size alone: financial institutions and registered investment advisers qualify automatically, while any other person needs $50 million in total assets. A discretionary account requires the firm to keep a record of the dated signature of each associated person authorized to exercise discretion.
Account type shapes which recordkeeping and disclosure duties apply. Get the category wrong and you either skip a required record or apply a burden the account is exempt from.
What Makes an Account Institutional?
The customer account information rule sorts institutional accounts into three categories. Only the last one carries a dollar threshold.
| Category | Qualifies as institutional if... |
|---|---|
| Financial institution | The account holder is a bank, savings and loan association, insurance company, or registered investment company. |
| Registered investment adviser | The account holder is an investment adviser registered with the Securities and Exchange Commission (SEC) under the Investment Advisers Act, or registered with a state securities commission, or with any agency or office performing like functions. |
| Any other person | The account holder, whether a natural person or otherwise, has total assets of at least $50 million. |
An institutional account is exempt from three items covered later in this unit: the associated-person-responsibility record, the trusted contact person requirement, and the reasonable-efforts information a firm must otherwise try to collect before the initial transaction settles.
Think of it this way: a bank, insurance company, registered fund, or registered adviser is already institutional, no matter how small its balance sheet is. Size only decides the outcome for the catch-all "any other person" row.
Exam Tip: Gotchas
- The $50 million asset threshold applies only to the catch-all "any other person" category. A bank, insurance company, registered investment company, or registered investment adviser qualifies as institutional regardless of its asset size.
- The communications rules reuse this exact test. Their "institutional investor" starts from the three categories above, then adds governmental entities, employee benefit and qualified retirement plans with at least 100 participants in the aggregate, member firms and their registered persons, and anyone acting solely for such a person. The plan qualifies, but an individual participant in it does not.
- So every institutional account is an institutional investor, but not every institutional investor holds an institutional account.
What Is a Discretionary Account?
- Discretionary account: an account in which the member firm exercises investment discretion for the customer, meaning the firm decides what to buy or sell, or how much, without asking the customer for each transaction.
- The customer account information rule requires the firm to maintain a record of the dated signature of each associated person authorized to exercise discretion in the account.
- This recordkeeping duty does not apply to discretion a customer grants only over the price at which, or the time when, an order is executed, for a definite dollar amount or quantity of a specified security the customer has already chosen.
Think of it this way: a customer who says "sell my 500 shares of XYZ whenever you think the price is best today" has not created a discretionary account for recordkeeping purposes, because the security, the direction, and the quantity are already fixed. A customer who says "use your judgment on what to buy for me" has.
Exam Tip: Gotchas
- This recordkeeping duty only requires a dated signature on file. A separate written-authorization and principal-acceptance process governs whether an associated person may exercise discretion in the account at all. Do not confuse the recordkeeping duty tested here with that authorization process itself.
What Should You Check on Exam Day?
- Confirm whether a fact pattern tests a status-based institutional category (no dollar test) or the catch-all "any other person" row ($50 million test).
- Check whether an exemption a fact pattern relies on (associated-person record, trusted contact, reasonable-efforts information) actually requires institutional status, not just a large account.
- Distinguish price-and-time discretion over an already-chosen security from discretion over what to buy, sell, or how much; only the latter triggers the dated-signature record.