Michigan Administrative Code › Department - Licensing and Regulatory Affairs › Corporations, Securities, and Commercial Licensing › Securities › Securities › Part 4 - BROKER-DEALERS, AGENTS, INVESTMENT ADVISERS, INVESTMENT ADVISER REPRESENTATIVES, AND FEDERAL COVERED INVESTMENT ADVISERS › Section R. 451.4.24 - Records to be maintained by investment advisers

Current through Vol. 24-12, July 15, 2024
Rule 4.24.
(1)
					 For the purposes of this rule, "access person" means when used in connection
					 with a company primarily engaged in a business or businesses other than
					 advising investment advisory clients, a person who has access to nonpublic
					 information regarding any clients purchase or sale of securities, or nonpublic
					 information regarding the portfolio holdings of any reportable fund, and any
					 person who is involved in making securities recommendations to clients, or who
					 has access to such recommendations that are nonpublic, and any partner,
					 officer, or director of the investment adviser.
(2) Every investment adviser registered, or
					 required to be registered, under the act shall make and keep true, accurate,
					 and current all of the following books, ledgers, and records:
(a) 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.
(b) General and auxiliary ledgers, or other
					 comparable records, reflecting asset, liability, reserve, capital, income, and
					 expense accounts.
(c) A record of
					 each order given by the investment adviser for the purchase or sale of a
					 security, of any instruction received by the investment adviser from the client
					 concerning the purchase, sale, receipt, or delivery of a particular security,
					 and of a modification or cancellation of any such order or instruction. The
					 record must do all of the following: show the terms and conditions of the
					 order, instruction, modification, or cancellation; identify the person
					 connected with the investment adviser who recommended the transaction to the
					 client and the person who placed the order; and show the account for which
					 entered, the date of entry, and the bank, broker-dealer by or through whom
					 executed where appropriate. Orders entered pursuant to the exercise of
					 discretionary power must be so designated.
(d) All checkbooks, bank statements, canceled
					 checks, and cash reconciliations of the investment adviser.
(e) All bills or statements, or copies of,
					 paid or unpaid, relating to the investment adviser's business.
(f) All trial balances, financial statements,
					 and internal audit working papers relating to the investment adviser's
					 business.
(g) Copies of all written
					 communications received and sent by the investment adviser relating to all of
					 the following:
(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.
(iv) 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.
(v) If the
					 investment adviser sends a notice, circular, or other advertisement offering a
					 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 the notice, circular, or
					 advertisement was sent. If the notice, circular, or advertisement is
					 distributed to persons named on a list, the investment adviser shall retain
					 with the copy of the notice, circular, or advertisement a memorandum describing
					 the list and its source.
(h) A list or other record of all accounts
					 that identifies the accounts in which the investment adviser is vested with any
					 discretionary power with respect to the funds, securities, or transactions of a
					 client.
(i) A copy of all powers of
					 attorney and other evidences of the granting of any discretionary authority by
					 a client to the investment adviser.
(j) A copy in writing of each agreement
					 entered into by the investment adviser with a client, and all other written
					 agreements otherwise relating to the investment adviser's business as an
					 investment adviser.
(k) A copy of
					 each notice, circular, advertisement, newspaper article, investment letter,
					 bulletin, or other communication including by electronic media that the
					 investment adviser directly or indirectly circulates or distributes to 10 or
					 more persons, other than persons connected with the investment adviser. If the
					 notice, circular, advertisement, newspaper article, investment letter,
					 bulletin, or other communication recommends the purchase or sale of a specific
					 security and does not state the reasons for the recommendation, a memorandum of
					 the investment adviser indicating the reasons for the recommendation shall be
					 kept.
(l) A record of every
					 transaction in a security in which the investment adviser or any access person
					 of the investment adviser has, or by reason of any transaction acquires, any
					 direct or indirect beneficial ownership. The record must state the title and
					 amount of the security involved; the date and nature of the transaction, for
					 example the 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. A record under this subrule does not
					 need to be kept for a transaction in a security involving any of the following:
(i) Direct obligations of the government of
					 the United States.
(ii) Bankers
					 acceptances, bank certificates of deposit, commercial paper, and high quality
					 short-term debt instruments, including repurchase agreements.
(iii) Shares issued by money market
					 funds.
(iv) Shares issued by
					 open-end funds other than reportable funds.
(v) Shares issued by unit investment trusts
					 that are invested exclusively in 1 or more open-end funds, none of which are
					 reportable funds.
(m)
					 The record may also contain a statement declaring that the reporting or
					 recording of any transaction is not as an admission that the investment adviser
					 or advisory representative has any direct or indirect beneficial ownership in
					 the security.
(n) A transaction
					 must be recorded not later than 10 days after the end of the calendar quarter
					 in which the transaction was effected.
(o) A record is not required for either
					 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; or for transactions in securities that are
					 direct obligations of the United States.
(p) An investment adviser shall not be deemed
					 to have violated the provisions of this subdivision because of the failure to
					 record securities transactions of any advisory representative if the investment
					 adviser establishes that it instituted adequate procedures and used reasonable
					 diligence to obtain promptly reports of all transactions required to be
					 recorded.
(q) Notwithstanding the
					 provisions of subdivision (l) of this subrule, where the investment adviser is
					 primarily engaged in a business or businesses other than advising investment
					 advisory clients, a record must be maintained of every transaction in a
					 security in which the investment adviser or any access person of the investment
					 adviser has, or by reason of any transaction acquires, any direct or indirect
					 beneficial ownership. The record must state all of the following:
(i) The title and amount of the security
					 involved.
(ii) The date and nature
					 of the transaction, for example purchase, sale, or other acquisition or
					 disposition.
(iii) The price at
					 which it was effected.
(iv) The
					 name of the broker-dealer or bank with or through whom the transaction was
					 effected.
(v) The record may also
					 contain a statement declaring that the reporting or recording of any
					 transaction is not an admission that the investment adviser or advisory
					 representative has any direct or indirect beneficial ownership in the
					 security.
(vi) A transaction must
					 be recorded not later than 10 days after the end of the calendar quarter in
					 which the transaction was effected.
(vii) A record is not required for either of
					 the following:
(A) 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.
(B) Transactions in
					 securities that are direct obligations of the United States.
(viii) An investment adviser is
					 deemed to be "primarily engaged in a business or businesses other than advising
					 investment advisory clients" if, for each of its most recent 3 fiscal years or
					 for the period of time since organization, whichever is less, the investment
					 adviser derived, on an unconsolidated basis, more than 50% of total sales and
					 revenues, and more than 50% of income or loss before income taxes and
					 extraordinary items, from other business or businesses that did not primarily
					 involve the giving of investment advice.
(ix) An investment adviser is not deemed to
					 have violated the provisions of this subdivision because of the failure to
					 record securities transactions of an advisory representative if the investment
					 adviser establishes that it instituted adequate procedures and used reasonable
					 diligence to obtain promptly reports of all transactions required to be
					 recorded.
(r) A copy of
					 each written statement and each amendment or revision, given or sent to any
					 client or prospective client of the investment adviser pursuant to the
					 provisions of R 451.4.19; summary of material changes that is required by part
					 2 of Form ADV but is not contained in the written statement; and a record of
					 the dates that each written statement, including an amendment or revision to
					 the written statement, and a summary of material changes was given, or offered
					 to be given, to any client or prospective client who subsequently becomes a
					 client.
(s) 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 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 to 2
					 or more persons, other than persons connected with the investment adviser. With
					 respect to the performance of managed accounts only, the retention of all
					 account statements, reflecting 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 is deemed to satisfy the requirements of this
					 paragraph.
(t) A file containing a
					 copy of all written communications received or sent regarding any litigation
					 involving the investment adviser or an investment advisers representative or
					 employee and regarding any customer or client complaint.
(u) Written information about each investment
					 advisory client that is the basis for making any recommendation or providing
					 any investment advice to such client.
(v) Written procedures regarding the
					 supervision of employees and investment adviser representatives that are
					 reasonably designed to achieve compliance with the act and rules promulgated
					 under the act, and federal laws and rules.
(w) A copy of each document, other than any
					 notices of general dissemination, that was filed with or received from any
					 state or federal agency or self-regulatory organization and that pertains to
					 the registrant or its investment adviser representatives which file should
					 contain, but is not limited to, all applications, amendments, renewal filings,
					 and correspondence.
(x) A record
					 with original signatures of the investment advisers appropriate signatory and
					 the investment adviser representative, of each initial Form U4 and each
					 amendment to the disclosure reporting pages.
(y) If an investment adviser inadvertently
					 holds or obtains a clients securities or funds and returns them within 3
					 business days, the investment adviser shall keep a copy of each such financial
					 instrument and a ledger or other listing of all securities or funds received,
					 including all of the following information:
(i) Issuer, payor, or maker, as may be
					 applicable.
(ii) Type of security
					 and series.
(iii) Date of
					 issue.
(iv) For debt instruments,
					 the denomination, interest rate, and maturity date.
(v) Certificate number, including
					 alphabetical prefix or suffix.
(vi)
					 Name in which registered.
(vii)
					 Date given to the investment adviser.
(viii) Date sent to client or
					 sender.
(ix) Form of delivery to
					 client or sender, or copy of the form of delivery to client or
					 sender.
(x) Mail confirmation or
					 courier tracking number, if applicable, or confirmation by client or sender of
					 the funds or securitys return.
(z) If an investment adviser obtains
					 possession of securities that are acquired from the issuer in a transaction or
					 chain of transactions not involving any public offering that meet the exception
					 from custody under R 451.4.13, the investment adviser shall keep both of the
					 following records:
(i) A record showing the
					 issuer or current transfer agents name, address, phone number, and other
					 applicable contact information pertaining to the party responsible for
					 recording client interests in the securities.
(ii) A copy of any legend, shareholder
					 agreement or other agreement providing that those securities are transferable
					 only with prior consent of the issuer or holders of the outstanding securities
					 of the issuer.
(aa) An
					 investment adviser that exercises voting authority with respect to client
					 securities shall, with respect to those clients, make and retain all of the
					 following:
(i) Copies of all policies and
					 procedures required by R 451.4.20.
(ii) A copy of each proxy statement that the
					 investment adviser receives regarding client securities. An investment adviser
					 may satisfy this requirement by relying on a third party to make and retain, on
					 the investment advisers behalf, a copy of a proxy statement, provided that the
					 adviser has obtained an undertaking from the third party to provide a copy of
					 the proxy statement promptly upon request, or may rely on obtaining a copy of a
					 proxy statement from the EDGAR system.
(iii) A record of each vote cast by the
					 investment adviser on behalf of the client. An investment adviser may satisfy
					 this requirement by relying on a third party to make and retain, on the
					 investment advisers behalf, a record of the vote cast, provided that the
					 adviser has obtained an undertaking from the third party to provide a copy of
					 the record promptly upon request.
(iv) A copy of any document created by the
					 adviser that was material to making a decision how to vote proxies on behalf of
					 a client or that memorializes the basis for that decision.
(v) A copy of each written client request for
					 information on how the adviser voted proxies on behalf of the client, and a
					 copy of any written response by the investment adviser to any written or oral
					 client request for information on how the adviser voted proxies on behalf of
					 the requesting client.