Supervision of Investment Company and Variable Contracts Products Activities
The supervisory framework
A Series 26 principal is the designated supervisor for mutual fund, UIT and variable contracts sales. FINRA Rules 3110 and 3120 require a written supervisory system, written procedures keyed to the firm's actual business, a designated principal responsible for each supervisory area, and annual CEO certification that the system is reasonably designed. Day to day this means approving new accounts and transactions, reviewing correspondence, approving retail communications, holding the annual compliance meeting, inspecting branch offices, and tracking customer complaints.
Communications under Rule 2210
Separate the categories. Correspondence is written communication sent to 25 or fewer retail investors in any 30-day period; it may go out before review but must be sampled and supervised after the fact. Retail communications must be approved by a registered principal before first use. If a retail communication about a fund or variable contract includes performance, or is not otherwise exempt, it must be filed with FINRA's Advertising Regulation Department through FINRA Gateway within 10 business days of first use. Performance must be fair and balanced, using standardized periods and required disclosures.
Traps
- Assuming any registered representative can approve a piece - approval requires a principal.
- Confusing the 10-business-day filing deadline with an annual filing.
- Missing that non-cash compensation limits cannot be tied to sales of a particular product.
Rule of thumb: before any piece leaves the office, ask three questions - is it correspondence or a retail communication, is it pre-approved by a principal, and does it require a FINRA filing?