SEC Risk Alert Highlights Books and Records Requirements for Investment Advisers

Jun 14th '23

The Securities and Exchange Commission (SEC) has recently issued a Risk Alert that provides important insights for investment advisers registered or required to be registered with the SEC. The alert focuses on additional areas of emphasis during examinations related to the amended Rule 206(4)-1, commonly referred to as the Marketing Rule, under the Investment Advisers Act of 1940.


In this blog post, Smarsh delve into the key aspects of the Risk Alert, with a particular focus on the books and records requirements.


Initial areas of review

The SEC staff has been prioritizing several areas for examination in relation to the Marketing Rule. These areas include:


  • Policies and procedures
  • Substantiation requirements
  • Performance advertising requirements
  • Books and records compliance


Investment advisers are encouraged to review their websites and marketing materials to ensure compliance with the Marketing Rule. They also need to ensure that they have a reasonable basis for substantiating material statements of fact and that their advertising aligns with the rule’s requirements.


Books and records requirements is a key focus

One significant aspect emphasized in the Risk Alert is the importance of books and records requirements compliance, as outlined in Advisers Act Rule 204-2.


Investment advisers can expect a SEC examination to review:


Compliance expectations:

The SEC staff will assess whether investment advisers comply with Rule 204-2, which requires them to create and maintain specific records related to their advertisements.


Recordkeeping obligations:

Advisers are required to keep records of all their advertisements. This encompasses a wide range of records, including internal working papers, performance-related information, and documentation for oral advertisements, testimonials, and endorsements.


Internal documentation:

Adequate internal documentation is crucial to demonstrate compliance with the Marketing Rule. Investment advisers should maintain records of the development and review processes of their advertisements.


Accessibility and retention:

Records must be easily accessible and retained for the required period. Advisers should establish procedures to ensure proper retention and accessibility of records, particularly those related to advertisements.


Reasonable basis for statements:

Records should demonstrate that advisers have a reasonable basis for substantiating material statements of fact in their advertisements. This may involve maintaining supporting documentation, data, or analysis to ensure accuracy and verifiability.


Scope of records:

Rule 204-2 outlines the various records that must be maintained, including drafts or revisions of advertisements, records of reviews and approvals, and records of advertisement placement or distribution.


What investment advisers need to do moving forward

The SEC’s Risk Alert highlights the importance of compliance with books and records requirements under Advisers Act Rule 204-2 within the context of Marketing Rule examinations. Investment advisers are advised to review their recordkeeping practices, ensuring the availability and retention of required records.


Adequate documentation should be maintained to demonstrate compliance with the Marketing Rule and substantiation of material statements of fact in advertisements. By addressing these areas, advisers can enhance their overall compliance efforts and minimize regulatory risks.


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Source: Smarsh


Author: Tiffany Magri Regulatory Advisor at Smarsh

As a Regulatory Advisor at Smarsh, Tiffany monitors, evaluates and consults on the financial services regulatory landscape. Tiffany has more than 10 years of experience facilitating compliance with laws and regulations, policies, and risk management. Prior to joining Smarsh, Tiffany was a Senior Associate at Benefit Street Partners and a Compliance Analyst at Broadstone and Manning & Napier Advisors.


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