Thursday, January 21, 2010

Books and Records

One of the reasons I'll probably never open an advisory business is that I hate record-keeping. If you read the NASAA's "Recordkeeping Requirements For Investment Advisers Model Rule 203(a)-2" you will see that advisers have to keep better records than surgeons and nuclear waste disposal companies combined. I'm lucky if I remember to print out my monthly account statements for the IRA, SIMPLE, etc.

Since recordkeeping is an important topic, we should expect one or two questions similar to the following:

An investment adviser’s duty to maintain books and records is accurately described by which of the following?
A. only advisers with custody or discretion are required to keep books and records subject to inspection by the Administrator
B. electronic records are allowed only if hard copies are also maintained on site
C. an adviser must retain records for five years from the end of the fiscal year during which the last entry was made on record
D. an adviser with offices in more than one state must meet the books and records requirements of each state

EXPLANATION: all advisers have to keep records, so A is eliminated. Electronic records are okay as long as the adviser can "reasonably ensure that any reproduction of a non-electronic original record on electronic storage media is complete, true, and legible when retrieved" and that the records are "reasonably safeguarded from loss, alteration, or destruction" and the adviser "limits access to the records to properly authorized personnel and the [Administrator] (including its examiners and other representatives)." So, B is eliminated. And, D is eliminated because the adviser only has to meet the books and records requirements set by the Administrator of their "principal place of business."


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