Maintaining Investment Advisor Books and Records

July 12, 2011

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 Rule 204-2 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 regulatory authority for your investment advisor.

Books and records requirements should be covered in an investment advisor’s written compliance policies and procedures.  Each time there are changes to the rules under the Advisers Act, it is likely that Rule 204-2 will be affected.  A registered investment advisor should review and determine how those changes affect Rule 204-2 and should update its written policies and procedures accordingly.  Investment advisor’s books and records will be reviewed as part of a regulatory examination.  It is important for all investment advisors to periodically review and test to ensure that they are maintaining accurate and current books and records.

The SEC recently adopted new rules and amendments to existing rules under the Advisers Act to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).  Regulators have indicated that one of the expected results of these rule changes will be increased regulatory oversight of investment advisors.  One of the changes resulting from the Dodd-Frank Act is the reallocation of regulatory oversight to the state securities authorities for certain smaller investment advisors.  Investment advisors with between $25 million and $100 million of assets under management (“mid-sized investment advisors”) will now be required to register with the states, if they are subject to an examination by state securities authorities.  Many investment advisors that are currently registered have not had a regulatory exam for a number of years, if at all.  It is expected that the reallocation of regulatory oversight will result in more frequent examinations for both SEC and state registered investment advisors.  Investment advisors should make sure that they are prepared for a regulatory examination by reviewing and testing their written policies and procedures to make sure that they reflect the current practices of the investment advisor and that they are consistent with the books and records requirements of the appropriate regulatory authority.

For more information and guidance on maintaining the appropriate books and records for your investment advisor, please register to attend our webinar, “Maintaining Investment Advisor Books and Records.” The webinar will be presented on July 14, 2011 at 12:00 pm CDT for a fee of $59.95.  To register now click here.

Posted by Bryan Hill
Labels: Books Records, Record Keeping, Switch from SEC to State