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.

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