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SEC Compliance
Recordkeeping Requirements for Advisors
According to the U.S. Securities and Exchange Commission (SEC), federally registered investment advisors may be subject to an SEC examination or inspection for three main reasons: (1) routine examination or inspection (2) because of an investor complaint (3) an industry-wide examination focusing on a particular area of investment advisor compliance or risk area.
For Advisors, the SEC's main regulatory focus is gauging if a firm has adequate documentation and internal controls when it comes to demonstrating compliance. The Investment Advisers Act of 1940 ("Advisers Act") and Rule 204-2 outline what investment advisory (IA) records must be currently maintained and made available during an audit.
Tamarac's rebalancing and trade order generation solution, Advisor, auto-generates several documentation requirements in easily stored electronic formats.
Rule 204-2 specifically identifies the records relating to an IA business that every advisor must keep.
Records required of every advisor
Accounting records Traditional accounting records and related source documents on a cash and/or accrual basis.
Memorandum on security orders (provided in Tamarac) A written record of orders and instructions related to the execution of security trades including; the terms and conditions of the order, the person that recommended the order, the account for which it was entered, and notation if the order was entered pursuant to the advisor's discretionary power.
Written Communications Including client communications as well as advertisements.
Documents supporting performance information All working papers and records that demonstrate the calculation and tracking of the rate of return for all accounts.
List of discretionary accounts (provided in Tamarac) Maintained list of all accounts where advisor has discretionary power.
Powers of attorney Documentation showing client(s) granting discretionary power of attorney to an advisor.
Written Contracts Documentation showing client(s) consent into a contractual obligation with the advisor, such as Investment Policy Statement.
Personal securities transactions Records of every transaction by the advisor, or any of its "advisory representatives" in which they acquire any direct or indirect beneficial ownership of a security.
Discloser documents Copies of each brochure given to or sent to a client.
Client solicitation agreements A written solicitation agreement from the solicitor and signed proof that each client obtained by the solicitation received a copy of the advisor's brochure and notice of the solicitor.
Records for advisors with custody Documentation showing all purchases, sales, receipts and deliveries of securities, including certificate numbers, and all other debits and credits.
Investment supervisory services (provided in Tamarac) Advisors that give continuous advice as to the investment of funds on the basis of the individual needs of each client must show documentation for 1) securities purchased and sold, and the date, amount and price of purchase and sale; and 2) for each security in which a client has a current position, information from which the advisor can promptly furnish the name of each client and the current amount or interest of each client.
Proxy voting records Documentation supporting proxy voting policies and procedures, proxy statements regarding client securities, records of votes cast on behalf of the client, records of client requests for proxy voting information and any information provided to aid clients in proxy voting decision making.
Coded designation for certain clients Numerical and/or alphabetical coding system used by advisor to represent accounts in place of actual client names.
Time, place and manner for retention Addresses the amount of time and place records are to be maintained. Most documents must be maintained for five years, with the first two years maintained on site at advisor's office, and the remaining three years can be placed in easily accessible offsite storage.
Advisors exiting the business Advisors ceasing to conduct business must arrange for the proper preservation of records in accordance with required timelines and accessibility, prior to ending their business.
Duplication of records Simply states that if a document supporting a sub-section in paragraph A (above) also contains information as outlined in another sub-section, a duplicate copy of that record need not be maintained and the first reference of the information will meet the requirements of the SEC.
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