California Code of Regulations › Title 10 - Investment › Chapter 3 - Commissioner of Financial Protection and Innovation › Subchapter 2 - Corporate Securities › Article 11 - General Provisions Relating to Agents, Broker-Dealers and Investment Advisers › Section 260.241.3 - Books and Records to be Maintained by Investment Advisers

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a) Every licensed
				  investment adviser shall make and keep true, accurate and current the following
				  books and records relating to such person's investment advisory business:
(1) A journal or journals, including cash
				  receipts and disbursements records, and any other records of original entry
				  forming the basis of entries in any ledger.
(2) General and auxiliary ledgers (or other
				  comparable records) reflecting asset, liability, reserve, capital, income and
				  expense accounts.
(3) A memorandum
				  of each order given by the investment adviser for the purchase or sale of any
				  security, of any instruction received by the investment adviser from a client
				  concerning the purchase, sale, receipt or delivery of a particular security,
				  and of any modification or cancellation of any such order or instruction. Such
				  memoranda shall show the terms and conditions of the order, instruction,
				  modification or cancellation; shall identify the person connected with the
				  investment adviser who recommended the transaction to the client and the person
				  who placed such order; and shall show the account for which entered, the date
				  of entry, and the bank or broker-dealer by or through whom executed where
				  appropriate. Orders entered pursuant to the exercise of a power of attorney
				  shall be so designated.
(4) All
				  check books, bank statements, cancelled checks and cash reconciliations of the
				  investment adviser.
(5) All bills
				  or statements (or copies thereof), paid or unpaid, relating to the business of
				  the investment adviser as such.
(6)
				  All trial balances, financial statements, worksheets that contain computations
				  of minimum financial requirements required under Section
				  260.237.2, of these rules, and
				  internal audit working papers relating to the business of such investment
				  adviser.
(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, or (iii) the placing or
				  execution of any order to purchase or sell any security; provided, however,
				  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 provided 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.
(8) A list or other record
				  of all accounts in which the investment adviser is vested with any power of
				  attorney with respect to the funds, securities or transactions of any
				  client.
(9) All powers of attorney
				  and other evidences of the granting of any discretionary authority by any
				  client to the investment adviser, or copies thereof.
(10) All written agreements (or copies
				  thereof) entered into by the investment adviser with any client or otherwise
				  relating to the business of such investment adviser as such.
(11) A copy of each notice, circular,
				  advertisement, newspaper article, investment letter, bulletin or other
				  communication recommending the purchase or sale of a specific security, which
				  the investment adviser circulates or distributes, directly or indirectly, to 10
				  or more persons (other than investment supervisory clients or persons connected
				  with such investment adviser), and if such notice, circular, advertisement,
				  newspaper article, investment letter, bulletin or other communication does not
				  state the reasons for such recommendation, a memorandum of the investment
				  adviser indicating the reasons therefor.
(12) A record of every transaction in a
				  security in which the investment adviser or any advisory representative (as
				  hereinafter defined) of such investment adviser has, or by reason of such
				  transaction acquires, any direct or indirect beneficial ownership, except (i)
				  transactions effected in any account over which neither the investment adviser
				  nor any advisory representative of the investment adviser has any direct or
				  indirect influence or control; and (ii) transactions in securities which are
				  direct obligations of the United States. Such record shall state the title and
				  amount of the security involved; the date and nature of the transaction (i.e.,
				  purchase, sale or other acquisition or disposition); the price at which it was
				  effected; and the name of the broker-dealer or bank with or through whom the
				  transaction was effected. Such record may also contain a statement declaring
				  that the reporting or recording of any such transaction shall not be construed
				  as an admission that the investment adviser or advisory representative has any
				  direct or indirect beneficial ownership in the security. A transaction shall be
				  recorded not later than 10 days after the end of the calendar quarter in which
				  the transaction was effected.
For purposes of this subsection (12):
(A) The term "advisory representative" shall
				  mean any partner, officer or director of the investment adviser; any employee
				  who makes any recommendation, who participates in the determination of which
				  recommendation shall be made, or whose functions or duties relate to the
				  determination of which recommendation shall be made; any employee who, in
				  connection with such person's duties, obtains any information concerning which
				  securities are being recommended prior to the effective dissemination of such
				  recommendations or of the information concerning such recommendations; and any
				  of the following persons who obtain information concerning securities
				  recommendations being made by such investment adviser prior to the effective
				  dissemination of such recommendations or of the information concerning such
				  recommendations:
(i) any person in a control
				  relationship to the investment adviser,
(ii) any affiliated person of such
				  controlling person and
(iii) any
				  affiliated person of such affiliated person.
(B) The term "control" shall mean the power
				  to exercise a controlling influence over the management and policies of a
				  person, unless such power is solely the result of an official position with
				  such person.
An investment adviser shall not be deemed to have violated
					 the provisions of this subsection (12) because of its failure to record
					 securities transactions of any advisory representative if it establishes that
					 it instituted adequate procedures and used reasonable diligence to obtain
					 promptly reports of all transactions required to be
					 recorded.
(13)
				  Notwithstanding the provisions of subsection (12) above, where the investment
				  adviser is primarily engaged in a business or businesses other than advising
				  registered investment companies or other advisory clients, a record must be
				  maintained of every transaction in a security in which the investment adviser
				  or any advisory representative (as hereinafter defined) of such investment
				  adviser has, or by reason of such transaction acquires, any direct or indirect
				  beneficial ownership, except (i) transactions effected in any account over
				  which neither the investment adviser nor any advisory representative of the
				  investment adviser has any direct or indirect influence or control; and (ii)
				  transactions in securities which are direct obligations of the United States.
				  Such record shall state the title and amount of the security involved; the date
				  and nature of the transaction (i.e., purchase, sale or other acquisition or
				  disposition); the price at which it was effected; and the name of the
				  broker-dealer or bank with or through whom the transaction was effected. Such
				  record may also contain a statement declaring that the reporting or recording
				  of any such transaction shall not be construed as an admission that the
				  investment adviser or advisory representative has any direct or indirect
				  beneficial ownership in the security. A transaction shall be recorded not later
				  than 10 days after the end of the calendar quarter in which the transaction was
				  effected.
For the purposes of this subsection (13):
(A) The term "advisory representative," when
				  used in connection with a company primarily engaged in a business or businesses
				  other than advising registered investment companies or other advisory clients,
				  shall mean any partner, officer, director or employee of the investment adviser
				  who makes any recommendation, who participates in the determination of which
				  recommendation shall be made, or whose functions or duties relate to the
				  determination of which recommendation shall be made, or who, in connection with
				  its duties, obtains any information concerning which securities are being
				  recommended prior to the effective dissemination of such recommendations or of
				  the information concerning such recommendations; and any of the following
				  persons who obtain information concerning securities recommendations being made
				  by such investment adviser prior to the effective dissemination of such
				  recommendations of the information concerning such recommendations:
(i) any person in a control relationship to
				  the investment adviser,
(ii) any
				  affiliated person of such controlling person and
(iii) any affiliated person of such
				  affiliated person.
(B)
				  The term "control" shall mean the power to exercise a controlling influence
				  over the management and policies of a person, unless such power is solely the
				  result of an official position with such person.
(C) An investment adviser is "primarily
				  engage in a business or businesses other than advising registered investment
				  companies or other advisory clients" when, for each of its most recent three
				  fiscal years or for the period of time since organization, whichever is lesser,
				  the investment adviser derived, on an unconsolidated basis, more than 50% of
				  (i) its total sales and revenues, and (ii) its income (or loss) before income
				  taxes and extraordinary items, from other business or businesses.
An investment adviser shall not be deemed to have violated
					 the provisions of this subsection (13) because of such person's failure to
					 record securities transactions of any advisory representative if it establishes
					 that it instituted adequate procedures and used reasonable diligence to obtain
					 promptly reports of all transactions required to be
					 recorded.
(14) A
				  properly completed and executed Customer Authorization of Disclosure of
				  Financial Records (Section
				  260.231(i)).
(15) If the investment adviser is an
				  individual owner (e.g., sole proprietorship), a properly completed and executed
				  Statement of Citizenship, Alienage, and Immigration Status form (Section
				  250.61) and any documents
				  establishing proof thereof.
(16)
				  Evidence of compliance with Section
				  260.236 and the investigation of
				  each investment adviser representative.
(17) For investment advisers filing through
				  IARD, copies, with original signatures of the investment adviser's appropriate
				  signatory and the investment adviser representative, of each initial Form
				  U4.