Firms Encouraged Not to Overlook Oct. 1 Books and Records Changes

While changes to Form ADV on October 1, 2017 have been well-publicized, we encourage firms not to overlook the other changes to Books and Records requirements put forth in the SEC’s final rule release, effective October 1, 2017.

The changes to the Rule relate to the retention of documents regarding the calculation of performance data.

  • Rule 204-2(a)(16): The Rule (provision 16) currently requires that advisers maintain records supporting performance claims in communications that are distributed to ten or more persons. The SEC has amended this provision by removing the 10 person condition and replacing it with “any person” (other than a person affiliated with the adviser). As of October 1, for any communications that include performance information (including information referring to performance prior to October 1), you must maintain materials that demonstrate how the performance was calculated.
  • Rule 204-2(a)(7): This Rule (provision 7) currently requires that advisers maintain certain categories of written communications sent and received by advisers. The SEC has amended this provision to require advisers to also maintain originals of all written communications received and copies of written communications sent by an investment adviser relating to the performance or rate of return of any or all managed accounts or securities recommendations.

Rule  

Changes
Rule 204-2(a)(16)(16) All accounts, books, internal working papers, and any other records or documents that are necessary to form the basis for or demonstrate the calculation of the performance or rate of return of any or all managed accounts or securities recommendations in any notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication that the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons to any person (other than persons connected with such investment adviser); provided, however, that, with respect to the performance of managed accounts, the retention of all account statements, if they reflect all debits, credits, and other transactions in a client’s account for the period of the statement, and all worksheets necessary to demonstrate the calculation of the performance or rate of return of all managed accounts shall be deemed to satisfy the requirements of this paragraph.
Rule  204-2(a)(7)(7) Originals of all written communications received and copies of all written communications sent by such investment adviser relating to (i) any recommendation made or proposed to be made and any advice given or proposed to be given, (ii) any receipt, disbursement or delivery of funds or securities, (iii) the placing or execution of any order to purchase or sell any security, or (iv) the performance or rate of return of any or all managed accounts or securities recommendations: Provided, however:

(A) That the investment adviser shall not be required to keep any unsolicited market letters and other similar communications of general public distribution not prepared by or for the investment adviser, and

(B) That if the investment adviser sends any notice, circular or other advertisement offering any report, analysis, publication or other investment advisory service to more than 10 persons, the investment adviser shall not be required to keep a record of the names and addresses of the persons to whom it was sent; except that if such notice, circular or advertisement is distributed to persons named on any list, the investment adviser shall retain with the copy of such notice, circular or advertisement a memorandum describing the list and the source thereof

Firms are encouraged to revisit their policies and procedures and ensure that such records are being captured and retained.

For more information regarding Ascendant products or services, please contact us at (860) 435-2255 or at info@ascendantcompliance.com.If you haven’t already, click here to sign up for our complimentary Ascendant 2017 Form ADV Toolkit and receive valuable content such as templates, checklists and commentary from our consulting team, all delivered through our proprietary software system, the Ascendant Compliance Manager.

Latest Content

Do your Fund Documents Clearly Disclose Receipt of Accelerated Monitoring Fees?

Somewhat more reminiscent of the broken-windows enforcement era, two affiliated private equity advisers managing billions settled with the SEC on charges that they failed to make pre-commitment disclosures in fund governing documents related to accelerated fees received from portfolio companies. Interestingly, according to the Settlement Order, the advisers had made some disclosures in fund documents … Continued

With New Risk Alert, SEC Doubles Down on Best Execution

On July 11, 2018, the SEC issued a Risk Alert outlining commonly found compliance issues related to best execution by investment advisers. Advisers have an obligation to seek best execution of client transactions, taking into consideration quantitative factors such as execution quality and commission rate, as well as more qualitative factors such as the value … Continued

The Cost of Compliance: Understanding and Leveraging Resources

For compliance officers, obtaining the necessary tools and resources to build an effective compliance program can be costly and difficult to implement. How do you distinguish the best in class, the most cost-efficient and effective for use in your program? In this ComplianceCast, speakers David Porteous of Faegre Baker Daniels and Korrine Kohm of Ascendant … Continued

California Privacy Law Brings GDPR-Lite to the U.S.

New Act Will Give Consumers Rights to Access and Delete Their Data In what has become an ongoing race among states to have the toughest privacy regulation in the U.S., California has jumped to the front. On June 28, 2018, California’s legislature unanimously passed a privacy bill that was later signed by Governor Jerry Brown, … Continued

SEC Deficiency Letters Require Swift Action

On the topic of SEC Deficiency Letters, if you have received one, you must promptly take corrective action. The SEC will not tolerate inappropriate delay. The SEC recently imposed an $8 million civil penalty on an adviser who, among other things, failed to promptly take corrective action in its Form ADV filing, following receipt of … Continued

Mailing List

Subscribe to the Ascendant Compliance email list for the latest compliance resources, conferences, ComplianceCasts™, and more.

Loading form...

Contact Us

Ascendant works together with clients to identify and assess critical needs through customized plans. If you need assistance with compliance functions, regulatory services, cybersecurity or technology tools, we’d love to speak with you.