Whether it is part of your annual 206(4)-7 testing or a routine on your compliance calendar, making sure your records are in order is a basic requirement. On August 25, 2016, the SEC adopted multiple amendments to Part 1A of Form ADV (“Form ADV”), which include amendments to the books and records rule under the Investment Advisers Act of 1940 that will require advisers to retain:
- Rule 204-2(a)(7) – in addition to the current retention requirements, originals of all written communications received and copies of written communications sent by an investment adviser relating performance claims or rates of return of any or all managed accounts or securities recommendations;
- Rule 204-2(a)(16) – originals of all written communications received and copies of all written communications sent by the investment adviser relating to the performance or rate of return of any or all managed accounts or securities recommendations. Previously, the rule required retention of these documents when sent in a communication distributed to 10 or more persons; now retention is required when distributed to one or more persons.
- Rule 204-2(a)(16) – materials listed in Rule 204-2(a)(16) that demonstrate the calculation rate of the performance or rate of return in any communication the adviser circulates or distributes to any person.
What Your Firm Should Do:
- Firms should obtain and review all communications sent and received by the investment adviser relating to the performance or rate of return of all managed accounts and securities transactions.
- Document your performance calculations as required by Rule 204-2(a)(16)
- Establish a consolidated document retention list with the location of the records and a retention
- Establish a process to hold records that are the subject of a regulatory review or litigation.
If records are not required to be maintained, consideration should be given to destroying those records in a secure manner.
Don’t forget about those old laptops and PCs, as they may contain information. While total device destruction is preferred, at a minimum, those hard drives should be securely wiped using NIST SP 800-88 Revision 1 “Guidelines for Media Sanitization.”
