Relationships and Dealings

The whole unit on one sheet: five narrow tests, each keyed to a different fact pattern.

Which One-Liners Win Points?

• A communication's category turns on its audience, not its content. Correspondence reaches a small number of retail investors, retail communication reaches a larger retail audience, and institutional communication goes only to institutional investors.
• Communication method and information privacy are separate issues. A question can test the audience category even when nonpublic personal information never comes up.
• A consumer is not automatically a customer. A consumer obtains a financial product or service for personal, family, or household purposes; a customer is a consumer with a continuing relationship with the firm.
• Vendor or associated-person status never creates Regulation S-P coverage by itself. The information must concern a consumer's personal, family, or household financial product or service.
• A higher commission never qualifies for the soft-dollar safe harbor by itself. The decision-maker needs investment discretion and a good-faith determination that the commission is reasonable against the value of qualifying services.
• Unregistered status alone does not answer the commission-payment question. Ask whether the payment and the recipient's related activities require broker-dealer registration.
• Vendor due diligence has no fixed checklist. The rules name areas to review, not a required form or a mandatory number of steps.

Is the Message Correspondence, Retail, or Institutional Communication?

• Correspondence: written or electronic communication distributed or made available to a small number of retail investors.
• Retail communication: written or electronic communication distributed or made available to a larger number of retail investors.
• Institutional communication: written or electronic communication made available only to institutional investors, excluding the firm's own internal communications.
• A registered principal generally approves retail communication before use.

Who and What Does Regulation S-P Protect?

• Consumer: an individual who obtains or has obtained a financial product or service primarily for personal, family, or household purposes.
• Customer: a consumer with a continuing relationship with the firm.
• Business, commercial, or agricultural information falls outside this consumer privacy scope.
• Nonpublic personal information (NPI) includes personally identifiable financial information, plus consumer lists or groupings derived from it that are not publicly available. Aggregate or blind data without personal identifiers is not NPI.
• Publicly available information can still be NPI when its disclosure would reveal that someone is or was the firm's consumer.
• Before most disclosures to a nonaffiliated third party, the firm gives notice and a reasonable opportunity to opt out. The consumer may opt out at any time, subject to applicable exceptions.
• Written safeguards serve three objectives: security and confidentiality of customer information, protection against anticipated threats to its security or integrity, and protection against unauthorized access that could cause substantial harm or inconvenience.

Which Gotchas Trip Students Up?

• The soft-dollar safe harbor needs the right recipient too. The higher commission must go to an exchange member, broker, or dealer, and the reasonableness determination can cover one transaction or the person's overall discretionary-account responsibilities.
• A commission-payment question is a registration question, not a label question. Look at what the recipient actually does, not just how the payment is described.
• Vendor due diligence can reach sub-contractors. The firm considers the vendor's own review of its sub-contractors when one could reach sensitive nonpublic information or a critical firm system.
• Vendor review depth scales with risk. A business-critical vendor or one fulfilling a regulatory requirement warrants a deeper review than one performing a minor support task.
• Regulation S-P protects consumer financial information, not every business relationship. Vendor or associated-person status alone does not bring information within its scope.

One-Breath Recap

Relationships and dealings tests five separable issues, so pin down which one a question is really asking before you answer. Sort written or electronic material by audience: correspondence for a small retail group, retail communication for a larger retail audience, institutional communication for institutional investors only. Keep information privacy separate: Regulation S-P protects a consumer's personally identifiable financial information, requires notice and an opt-out before most third-party disclosures, and demands written safeguards for security, threat protection, and unauthorized-access protection. For commissions, the soft-dollar safe harbor needs investment discretion plus a good-faith reasonableness finding, paying an unregistered person turns on the recipient's actual activities, and vendor due diligence asks only whether the vendor can do the job.

Need more than the recap? Read the full Relationships and Dealings unit.