Time to Get a New Filing Cabinet? Record Keeping Obligations for Newly Registered Advisers

Compliance attorney NYCAs we have been discussing on this blog, many advisers to private equity and hedge funds are required to register as investment advisers with the SEC by March 30, 2012. As the deadline for registration approaches, advisers should be preparing to comply with all the requirements of the Advisers Act.

Recordkeeping is one of the requirements. As a registered adviser, you are required to maintain true, accurate and current books and records relating to your investment advisory business (under “the Books and Records Rule”). The SEC is quite specific in Rule 204-2 of the Advisers’ Act as to what you are expected to keep.

It includes the following:

  • Advisory business financial and accounting records, including: cash receipts and disbursements journals; income and expense account ledgers; checkbooks; bank account statements; advisory business bills; and financial statements.
  • Records that pertain to providing investment advice and transactions in client accounts with respect to such advice, including: orders to trade in client accounts (referred to as “order memoranda”); trade confirmation statements received from broker-dealers; documentation of proxy vote decisions; written requests for withdrawals or documentation of deposits received from clients; and written correspondence you sent to or received from clients or potential clients discussing your recommendations or suggestions.
  • Records that document your authority to conduct business in client accounts, including: a list of accounts in which you have discretionary authority; documentation granting you discretionary authority; and written agreements with clients, such as advisory contracts.
  • Advertising and performance records, including: newsletters; articles; and computational worksheets demonstrating performance returns.
  • Records related to the Code of Ethics Rule, including those addressing personal securities transaction reporting by access persons.
  • Records regarding the maintenance and delivery of your written disclosure document and disclosure documents provided by certain solicitors who seek clients on your behalf.
  • Policies and procedures adopted and implemented under the Compliance Rule, including any documentation prepared in the course of your annual review.

Two observations: 1) Obviously, above and beyond the legally required, do consider keeping additional records for business purposes for example those demonstrating suitability. 2) The SEC has the authority to inspect the records, so be prepared! The successful outcome of many an audit might depend on how expediently and responsively the requested documents can be produced.

How We Can Help Ensure Compliance

Of course, this post provides only a brief overview of the compliance issues facing advisers in the coming months. Therefore, you should consult with experienced counsel to meet the new rules.

Eckerle Law offers a highest-quality and cost-effective alternative to the traditional law firm model for a wide variety of transactional and regulatory matters serving all your business law needs. Our experienced attorneys also provide a full range of compliance services for investment advisers, offering compliance tools that are tailored to fit the ever changing regulatory landscape as well as your business needs.

If your company would like to strengthen its business practices, please contact us today so we can leverage our experience to create real-life business and legal solutions to help your business thrive.