13.3 Recordkeeping Requirements
Key Takeaways
Most records must be kept for five years with the first two years readily accessible.
Records include correspondence, recommendations, ads, and compliance documents.
Electronic records are acceptable with safeguards and backups.
Regulators can examine records without prior notice.
Recordkeeping failures can lead to sanctions or revocation.
SEC Rule 204-2 and state equivalents require investment advisers to maintain extensive books and records. These requirements ensure compliance and enable regulatory examinations.
Required Records Categories
Business and Organizational Records
| Record Type | Examples |
|---|---|
| Formation Documents | Articles of incorporation, partnership agreements, bylaws |
| Governance Records | Minute books, resolutions, ownership records |
| Stock Certificates | If organized as corporation |
| Organizational Charts | Current structure and control persons |
Financial Records
| Record Type | Examples |
|---|---|
| General Ledger | All journal entries |
| Trial Balances | At least quarterly |
| Financial Statements | Balance sheets, income statements |
| Bank Records | Statements, canceled checks, reconciliations |
| Bills and Invoices | Paid and receivable |
Client Records
| Record Type | Examples |
|---|---|
| Client Agreements | All investment advisory contracts |
| Powers of Attorney | Discretionary authority documentation |
| Account Records | Holdings, transactions, valuations |
| Correspondence | All written communications with clients |
| Suitability Documentation | Client profiles, investment objectives |
Advisory Activity Records
| Record Type | Examples |
|---|---|
| Written Recommendations | All securities recommendations made |
| Discretionary Accounts List | Accounts with trading authority |
| Trade Records | Orders, confirmations, allocations |
| Research | Analyses supporting recommendations |
| Performance Records | Calculations supporting claims |
Compliance Records
| Record Type | Examples |
|---|---|
| Code of Ethics | Including acknowledgments |
| Compliance Policies | Written procedures |
| Access Person Reports | Personal trading reports |
| Advertising Files | All advertisements and communications to 10+ persons |
| Complaint Files | Client complaints and resolutions |
Retention Periods
Standard Five-Year Retention
| Requirement | Details |
|---|---|
| Total Period | 5 years from creation |
| First 2 Years | Must be in an "appropriate office" (easily accessible) |
| Remaining 3 Years | May be stored elsewhere but must be retrievable |
Extended Retention
| Record Type | Retention Period |
|---|---|
| Partnership/Corporate Documents | As long as entity exists + additional period |
| Code of Ethics | 5 years after last use |
| Client Agreements | 5 years after relationship ends |
| Advertisements | 5 years from last use |
After Termination
| Situation | Requirement |
|---|---|
| Adviser Deregisters | Maintain records for required period after deregistration |
| Adviser Merges | Successor maintains records |
| Adviser Liquidates | Designate custodian for records |
Electronic Recordkeeping
Requirements for Electronic Records
| Requirement | Details |
|---|---|
| Legibility | Must be readable and printable |
| Organization | Arranged for easy location and retrieval |
| Protection | Safeguards against alteration or destruction |
| Backup | Duplicate copies required |
| Audit Trail | Ability to detect unauthorized changes |
Electronic Communications
| Type | Requirement |
|---|---|
| Emails | Must be retained like other correspondence |
| Texts/Instant Messages | Must be captured and retained |
| Social Media | Business-related posts must be retained |
| Format | Searchable, retrievable format |
On the Exam: The Dodd-Frank Act extended Rule 204-2 to include private fund advisers and hedge fund managers, expanding recordkeeping requirements significantly.
Examination Authority
SEC Examination Rights
| Authority | Details |
|---|---|
| Access | May examine all books and records |
| Notice | No advance notice required |
| Copying | May copy any records |
| Location | May examine at adviser's premises or require production |
| Third Parties | May examine records maintained by third parties |
State Examination Authority
| Authority | Details |
|---|---|
| Parallel Powers | Similar to SEC for state-registered advisers |
| Coordination | May coordinate with SEC |
| Subpoena Power | Can compel production of records |
Consequences of Recordkeeping Failures
| Consequence | Description |
|---|---|
| Registration Revocation | Can lose registration |
| Sanctions | Fines, censure, bars from industry |
| Inability to Defend | Cannot prove compliance without records |
| Presumption of Violation | Missing records may create adverse inference |
Key Takeaways
- Most records must be kept for 5 years—first 2 years easily accessible
- Records include correspondence, recommendations, advertisements, and compliance documents
- Electronic records are acceptable but must be protected, backed up, and retrievable
- Regulators can examine records without prior notice
- Recordkeeping failures can result in sanctions and registration revocation
Investment adviser records must generally be maintained for:
3 years, all in the principal office
5 years, with the first 2 years in an easily accessible location
7 years, with the first 5 years in the principal office
10 years, all in electronic format
The SEC or state administrator may examine investment adviser records:
Only with 30 days advance written notice
Only with a court order
Without prior notice at any time
Only during regular business hours with 24-hour notice
Which of the following must be included in an investment adviser's records?
Only executed trade confirmations
Written recommendations, client correspondence, and advertisements to 10+ persons
Only records of discretionary accounts
Only financial statements
Sections you finish are checked off in the contents.