An Investment Advisor Should Test Periodically Whether It Is Maintaining The Required Books & Records

July 06, 2010

A registered investment advisor is required to make and keep true accurate and current certain books and records relating to its investment advisory business.  For investment advisors registered with the U.S. Securities and Exchange Commission (SEC), these required books and records are outlined in Rule 204-2 of the Investment Advisers Act of 1940 (“Advisers Act”).  Each investment advisor registered with the SEC should familiarize itself with the requirements of this rule in relation to the documents and reports that need to be maintained, where and for how long the documents must be maintained, and how the documents may be maintained.  Most books and records requirements for state registered investment advisors are the same as or similar to the SEC requirements, but you need to make sure that you familiarize yourself with the requirements of the appropriate governing authority.

Maintenance of books and records is something that should be covered in an investment advisor’s compliance program.  It is not enough just to know what you need to maintain, an investment advisor should perform periodic testing to make sure that it is maintaining and can provide the appropriate documents.  One effective method of doing this is to have a mock examination performed of your investment adviser.  Take the list of required books and records and test to whether you are prepared to present all required documents and if you can do so in a timely manner.  This is something that can be performed by an investment advisor’s own Compliance Department or you can hire RIA Compliance Consultants to perform this service for you.

The following are some examples of common books and records deficiencies that we find during mock examinations of investment advisors:

  • Not maintaining an order memorandum or not maintaining complete information in the order memorandum as outlined in Rule 204-2(a)(3) the Advisers Act;
  • Not maintaining current financial or complete financial records;
  • Not maintaining proper documentation to support performance advertising figures;
  • Not maintaining a list of all access persons for the past five years;
  • Not maintaining access person holdings reports;
  • Not maintaining records to support the firm’s duty of best execution;
  • Not maintaining or unable to locate contracts the firm has executed with service providers, sub-advisors, or solicitors;
  • Not able to easily or timely produce copies of requested email records; and
  • Not having complete or adequate written compliance programs or having written compliance programs that are not consistent with what the firm is actually doing.

For more information and guidance on maintaining the appropriate books and records for your investment advisor, register for the Maintaining Required Books and Records webinar that will be presented by RIA Compliance Consultants on July 28, 2010.

Posted by Bryan Hill
Labels: Books Records