13.3 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
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
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
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
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
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
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
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
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
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
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
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
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
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
1. Most records must be kept for 5 years—first 2 years easily accessible
2. Records include correspondence, recommendations, advertisements, and compliance documents
3. Electronic records are acceptable but must be protected, backed up, and retrievable
4. Regulators can examine records without prior notice
5. Recordkeeping failures can result in sanctions and registration revocation
Frequently Asked Questions
Q: Investment adviser records must generally be maintained for:
A: 5 years, with the first 2 years in an easily accessible location. Most investment adviser records must be maintained for 5 years. The first 2 years must be kept in an easily accessible location (an "appropriate office"), and the remaining 3 years may be stored elsewhere as long as they can be retrieved.
Q: The SEC or state administrator may examine investment adviser records:
A: Without prior notice at any time. Regulators have broad examination authority and may examine investment adviser books and records without prior notice. This "surprise" examination authority helps ensure compliance and prevents destruction of records.
Q: Which of the following must be included in an investment adviser's records?
A: Written recommendations, client correspondence, and advertisements to 10+ persons. Investment advisers must maintain extensive records including all written recommendations, client correspondence, advertisements distributed to 10 or more persons, and many other categories of business and compliance documents.