Recordkeeping Requirements
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
Test Your Knowledge
Investment adviser records must generally be maintained for:
A
B
C
D
Test Your Knowledge
The SEC or state administrator may examine investment adviser records:
A
B
C
D
Test Your Knowledge
Which of the following must be included in an investment adviser's records?
A
B
C
D
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13.4 Custody Requirements
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