Pennsylvania Code › Title 10 - BANKING AND SECURITIES › Part VII - Securities › Subpart C - Registration of Broker-Dealers, Agents, Investment Advisers and Investment Adviser Representatives and Notice Filings by Federally Covered Advisers › Chapter 304 - POSTREGISTRATION PROVISIONS › Section 304.012 - Investment adviser required records

Current through Register Vol. 54, No. 28, July 13, 2024
(a) Except as provided in subsection (j),
				  every investment adviser registered under the act shall make and keep true,
				  accurate and current all of the following books, ledgers and records:
(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 the client
				  concerning the purchase, sale, receipt or delivery of a particular security,
				  and of any modification or cancellation of the order or instruction. The
				  memorandum must:
(i) Show the terms and
				  conditions of the order, instruction, modification or cancellation.
(ii) Identify the person connected with the
				  investment adviser who recommended the transaction to the client and the person
				  who placed the order.
(iii) Show
				  the account for which entered, the date of entry and the bank, broker-dealer by
				  or through whom executed, if appropriate.
(iv) Designate orders entered under the
				  exercise of discretionary power.
(4) Check books, bank statements, canceled
				  checks and cash reconciliations of the investment adviser.
(5) Bills or statements (or copies of), paid
				  or unpaid, relating to the investment adviser's business as an investment
				  adviser.
(6) Trial balances,
				  financial statements, net worth computation and internal audit working papers
				  relating to the investment adviser's business as an investment
				  adviser.
(7) Originals of written
				  communications received and copies of written communications sent by the
				  investment adviser relating to one or more of the following:
(i) A recommendation made or proposed to be
				  made and any advice given or proposed to be given.
(ii) A receipt, disbursement or delivery of
				  funds or securities.
(iii) The
				  placing or execution of an order to purchase or sell any security, except that
				  an investment adviser:
(A) Is not required to
				  keep any unsolicited market letters and other similar communications of general
				  public distribution not prepared by or for the investment adviser.
(B) With respect to a notice, circular or
				  other advertisement offering any report, analysis, publication or other
				  investment advisory service sent by the investment adviser to more than ten
				  persons (including transmission by electronic means), the following apply:
(I) The investment adviser is not required to
				  keep a record of the names and addresses of the persons to whom it was
				  sent.
(II) If the notice, circular
				  or advertisement is distributed to persons named on any list, the investment
				  adviser shall retain with the copy of the notice, circular or advertisement a
				  memorandum describing the list and its source.
(8) A list or other record of all
				  accounts which list identifies the accounts in which the investment adviser is
				  vested with any discretionary power with respect to the funds, securities or
				  transactions of any client.
(9) A
				  copy of all powers of attorney and other evidences of the granting of any
				  discretionary authority by any client to the investment adviser.
(10) 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.
(11) A file
				  containing:
(i) A copy of each notice,
				  circular, advertisement, newspaper article, investment letter, bulletin or
				  other communication including by electronic media that the investment adviser
				  circulates or distributes, directly or indirectly, to two or more persons,
				  other than persons connected with the investment adviser.
(ii) A memorandum of the investment adviser
				  indicating the reasons for the recommendation if the notice, circular,
				  advertisement, newspaper article, investment letter, bulletin or other
				  communication including by electronic media recommends the purchase or sale of
				  a specific security and does not state the reasons for the
				  recommendation.
(12)
				  Records of transactions as follows:
(i) A
				  record of every transaction in a security in which the investment adviser or
				  investment adviser representative of the investment adviser has, or by reason
				  of any transaction acquires, any direct or indirect beneficial ownership
				  except:
(A) Transactions effected in any
				  account over which the investment adviser or an investment adviser
				  representative of the investment adviser does not have direct or indirect
				  influence or control.
(B)
				  Transactions in securities which are direct obligations of the United States.
				  The record must state:
(I) The title and
				  amount of the security involved, and the date and nature of the transaction
				  (that is, purchase, sale or other acquisition or disposition).
(II) The price at which it was
				  effected.
(III) The name of the
				  broker-dealer or bank with or through whom the transaction was
				  effected.
(ii)
				  The record may also contain a statement declaring that the reporting or
				  recording of any transaction will not be construed as an admission that the
				  investment adviser or investment adviser representative has any direct or
				  indirect beneficial ownership in the security.
(iii) A transaction shall be recorded not
				  later than 10 days after the end of the calendar quarter in which the
				  transaction was effected.
(iv) An
				  investment adviser shall implement adequate procedures and use reasonable
				  diligence to obtain promptly reports of all transactions required to be
				  recorded.
(13) Records of
				  transactions by investment advisers primarily engaged in a business other than
				  advising clients as follows:
(i)
				  Notwithstanding paragraph (12), if the investment adviser is primarily engaged
				  in a business or businesses other than advising investment advisory clients, a
				  record shall be maintained of every transaction in a security in which the
				  investment adviser or any investment adviser representative of the investment
				  adviser has, or by reason of any transaction acquires, any direct or indirect
				  beneficial ownership, except transactions:
(A)
				  Effected in an account over which the investment adviser or an investment
				  adviser representative of the investment adviser does not have direct or
				  indirect influence or control.
(B)
				  In securities which are direct obligations of the United States. The record
				  must state:
(I) The title and amount of the
				  security involved.
(II) The date
				  and nature of the transaction (that is, purchase, sale, or other acquisition or
				  disposition).
(III) The price at
				  which it was effected, and the name of the broker-dealer or bank with or
				  through whom the transaction was effected.
(ii) The record may also contain a statement
				  declaring that the reporting or recording of any transaction will not be
				  construed as an admission that the investment adviser or investment adviser
				  representative has any direct or indirect beneficial ownership in the
				  security.
(iii) An investment
				  adviser shall implement adequate procedures and use reasonable diligence to
				  promptly obtain reports of all transactions required to be recorded.
(14) A copy of the written
				  statement and the amendment or revision, given or sent to a client or
				  prospective client of the investment adviser under §
											404.011 (relating to investment
				  adviser brochure disclosure), and a record of the dates that the written
				  statement, and the amendment or revision, was given, or offered to be given, to
				  a client or prospective client who subsequently becomes a client.
(15) If the adviser obtained a client by
				  means of a solicitor to whom the adviser paid a cash fee:
(i) Evidence of a written agreement to which
				  the adviser is a party related to the payment of the fee.
(ii) A signed and dated acknowledgment of
				  receipt from the client evidencing the client's receipt of the investment
				  adviser's disclosure statement and a written disclosure statement of the
				  solicitor.
(iii) A copy of the
				  solicitor's written disclosure statement if required under §
												404.012 (relating to cash payment
				  for client solicitation).
(16) Accounts, books, internal working
				  papers, and any other records or documents 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:
(i) Includes electronic media
				  that the investment adviser circulates or distributes, directly or indirectly,
				  to two or more persons, other than persons connected with the investment
				  adviser.
(ii) Except 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 will be considered to satisfy the requirements of this
				  paragraph.
(17) A file
				  containing a copy of the written communications received or sent regarding any
				  litigation involving the investment adviser or an investment adviser
				  representative or employee, and regarding the written customer or client
				  complaint.
(18) Written information
				  about an investment advisory client that is the basis for making a
				  recommendation or providing investment advice to the client.
(19) Written procedures to supervise the
				  activities of employees and investment adviser representatives that are
				  reasonably designed to achieve compliance with applicable securities laws and
				  regulations.
(20) A file containing
				  a copy of the documents, other than notices of general dissemination, that were
				  filed with or received from a state or Federal agency or self-regulatory
				  organization and that pertains to the registrant or its investment adviser
				  representatives as that term is defined in §
											102.021(a)
				  (relating to definitions), which file may include all applications, amendments,
				  renewal filings and correspondence.
(21) A copy, with original signatures of the
				  investment adviser's appropriate signatory and the investment adviser
				  representative, of the initial Form U-4 and the amendment to Disclosure
				  Reporting Pages (DRPs U-4) shall be retained by the investment adviser filing
				  on behalf of the investment adviser representative and made available for
				  inspection on regulatory request.
(22) A ledger or other listing of all
				  securities or funds held or obtained in this manner if the adviser has
				  inadvertently held or obtained a client's securities or funds and returned them
				  to the client within 3 business days or has forwarded third-party checks within
				  24 hours under the definition of "custody" in §
											102.021(a), which
				  ledger or other listing includes all of the following information:
(i) The issuer.
(ii) The type of security and
				  series.
(iii) The date of
				  issue.
(iv) The denomination,
				  interest rate and maturity date for debt instruments.
(v) The certificate number, including
				  alphabetical prefix or suffix.
(vi)
				  The name in which the security is registered.
(vii) The date given to the
				  adviser.
(viii) The date sent to
				  client or sender.
(ix) The form of
				  delivery to client or sender, or copy of the form of delivery to client or
				  sender.
(x) The mail confirmation
				  number, if applicable, or confirmation by client or sender of the fund's or
				  security's return.
(23)
				  Written acknowledgements of receipts obtained from clients under §
											404.012(b)(5) and
				  copies of the disclosure documents provided to clients by solicitors under
				  § 404.012(b)(4).
(24) Written
				  procedures relating to the business and continuity plan required under §
											304.071 (relating to business
				  continuity and succession planning).