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What Are The SEC Recordkeeping Rules for Investment Advisors?

Harriet Christie

According to the Securities and Exchange Commission, investment advisors registered with the federal agency are considered fiduciaries --- which means they have a legal obligation to always act and provide advice with the best interests of their client in mind.

In keeping with their fiduciary duty, codified into law by the Investment Advisors Act of 1940, investment advisors must create and maintain records related to all interactions with clients. They must also create and maintain records of all business-related transactions, including any actions related to proxy voting powers.

Records That Need to Be Retained

The SEC books and records requirements for investment advisors go into significant detail regarding the specific types of items that must be kept. But generally speaking, investment advisors must archive all written communications with clients related to investment advice and transactions.

For example, if an investment advisor rebalances a portfolio, all of the purchases and sales of securities must be documented and stored. Furthermore, any communications explaining the rebalancing to the client must also be documented. This approach to record keeping is designed to create a comprehensive record of not only transactions but also the process behind them.

Rule 204-2 of the Investment Advisors Act states that advisors must also retain communications with prospective clients. In essence, this means that an investment firm must keep documents of all its marketing, advertisement, and public communications materials. The rule states that communication which reaches 10 or more people must be stored in a specific advertising file. This could include anything from a flyer posted in a college cafeteria to a post on Facebook.

The SEC has placed particular scrutiny on any advertising that discusses investment advisors' performance. Any investment company that decides to include data on past performance should be meticulous about keeping records of the associated marketing materials.

There are also a number of administrative records that must be retained under SEC books and records requirements for investment advisors. All versions of an investment advisor company's code of ethics must be archived, as well as any records of ethics violations. Companies should also archive employee acknowledgments of the code. Retaining these documents not only allows a company to remain compliant in the eyes of the SEC, but it also helps protect a company in the event that one of its advisors is sued for wrongdoing.

Additionally, investment advisors should preserve all records detailing interactions with politicians and political parties. These interactions include any work done for a political party and any political contributions.

Retention Period

The SEC record retention requirements dictate that most records should be kept for at least five years after their creation. For the first two years of this period, records should be readily accessible.

One type of exception is any records related to corporate governance, such as a code of ethics or articles of incorporation. These must be easily accessible while the company is operational. If the business is terminated, these records must be accessible for three years following termination.

During the retention period, investment advisor companies must put safeguards in place to keep records from being deleted, modified, or accessed without proper authorization. For the last three years of the retention periods, records don't need to be immediately accessible, but the company should be able to produce them within a reasonable amount of time if requested by inspectors.

SEC Inspections

Routine inspections of investment advisors they have registered with the SEC are quite common. Therefore, it is critical for investment advisors to have a robust recordkeeping system.

Emails fall under SEC records retention requirements and many investment advisors use automated tools to capture all business emails. While there are no specific requirements laid out in the law, the SEC does have broad authority to inspect the emails of investment advisors.

The agency likely isn't concerned with innocuous emails regarding lunch plans and company picnics. However, it's best to err on the side of caution and retain all emails that could fall under SEC books and records requirements for investment advisors. The agency could determine that an email inviting a client to a company social event falls under the category of business communications.

Emails should be kept in the system that enables searchability. Even though SEC records retention requirements don't explicitly require it, this best practice speaks to inspector preferences.

Once a retention period has ended for a particular document, it can be destroyed or deleted. A retention system should use a delete function that occurs regularly, maintains consistent criteria, and occurs systematically. Any perception of selective deletion should be avoided. If government inspectors issue a legal hold, deletion activities must be paused until the release of the legal hold.

How MirrorWeb Can Help

We have a deep knowledge of all SEC books and records requirements for investment advisors, and our archiving solutions are specifically designed with compliance in mind. Please visit our homepage today to schedule a consultation.

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