Washington Administrative Code › Title 460 - Financial Institutions, Department of (Securities Division) › Chapter 460-24A - Investment advisers › Section 460-24A-200 - Books and records to be maintained by investment advisers

Current through Register Vol. 24-14, July 15, 2024
(1) If you are an
			 investment adviser registered or required to be registered pursuant to
			 RCW
			  21.20.040, you must make and keep true,
			 accurate, and current the following books, ledgers, and records:
(a) A journal or journals, including cash
			 receipts and disbursement 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 memorandum
			 of each order given by you for the purchase or sale of any security, of any
			 instruction received by you 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. The memoranda must show the
			 terms and conditions of the order, instruction, modification or cancellation;
			 must identify the person connected with you who recommended the transaction to
			 the client and the person who placed the order; and must 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 must be so designated.
(d) All check books, bank statements,
			 canceled checks and cash reconciliations of the investment adviser.
(e) All bills or statements (or copies
			 thereof), paid or unpaid, relating to your business.
(f) All trial balances, financial statements,
			 and internal audit working papers or other supporting financial records
			 relating to your business as an investment adviser. For purposes of this
			 subsection, "financial statements" means a balance sheet prepared in accordance
			 with generally accepted accounting principles in the United States, an income
			 statement, a cash flow statement, and a net worth computation, if applicable,
			 as required by WAC
			 460-24A-170.
(g) Physical or electronic copies of all
			 written communications received and copies of all written communications sent
			 by you relating to your investment advisory business including, but not limited
			 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; and
(iii) The
			 placing or execution of any order to purchase or sell any security: Provided,
			 however, That you will not be required to keep any unsolicited market letters
			 and other similar communications of general public distribution not prepared by
			 or for you: And provided, That if you send any notice, circular or other
			 advertisement offering any report, analysis, publication or other investment
			 advisory service to more than ten persons, you will 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, you must retain with the copy of such notice, circular or
			 advertisement a memorandum describing the list and the source
			 thereof.
(h) A list or
			 other record of all accounts in which you are vested with any discretionary
			 authority over the funds, securities or transactions of any client.
(i) A copy of all powers of attorney and
			 other evidences of the granting of any discretionary authority by any client to
			 you.
(j) A written copy of each
			 signed agreement entered into by you with any client and all other written
			 agreements otherwise relating to your business as an investment
			 adviser.
(k) A file containing a
			 copy of each notice, circular, advertisement, newspaper article, investment
			 letter, bulletin or other communication, including by electronic media, and all
			 amendments thereto, that you circulate or distribute, directly or indirectly,
			 to two or more persons (other than persons connected with you), and if such
			 communication recommends the purchase or sale of a specific security and does
			 not state the reasons for the recommendation, a memorandum by you indicating
			 the reasons for the recommendation.
(l)
(i) A
			 record of every transaction in a security in which you or any of your advisory
			 representatives has, or by reason of such transaction acquires, any direct or
			 indirect beneficial ownership, except:
(A)
			 Transactions effected in any account over which neither you nor any of your
			 advisory representatives has any direct or indirect influence or control;
			 and
(B) Transactions in securities
			 which are direct obligations of the United States.
The record must 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.
				The record may also contain a statement declaring that the reporting or
				recording of any such transaction will not be construed as an admission that
				you or your advisory representative has any direct or indirect beneficial
				ownership in the security. You must record each transaction not later than ten
				days after the end of the calendar quarter in which the transaction was
				effected.
(ii)
			 For the purposes of this subsection (1)(l), the following definitions will
			 apply:
(A) "Advisory representative" means any
			 of your partners, officers or directors; any employee who participates in any
			 way in the determination of which recommendations will be made, or whose
			 functions or duties relate to the determination of which recommendation will be
			 made; any employee who, in connection with his or her duties, obtains any
			 information concerning which securities are being recommended prior to the
			 effective dissemination of the recommendations; and any of the following
			 persons who obtain information concerning securities recommendations being made
			 by you prior to the effective dissemination of the recommendations:
(I) Any person in a control relationship to
			 you;
(II) Any affiliated person of
			 a controlling person; and
(III) Any
			 affiliated person of an affiliated person.
(B) "Control" means the power to exercise a
			 controlling influence over the management or policies of a company, unless such
			 power is solely the result of an official position with such company. Any
			 person who owns beneficially, either directly or through one or more controlled
			 companies, more than twenty-five percent of the voting securities of a company
			 will be presumed to control such company.
(iii) You will not be deemed to have violated
			 the provisions of this subsection (1) because of the failure to record
			 securities transactions of any supervised person if you establish that you
			 instituted adequate procedures, and used reasonable diligence to obtain
			 promptly, reports of all transactions required to be recorded.
(m)
(i) Notwithstanding the provisions of (l) of
			 this subsection, if you are primarily engaged in a business or businesses other
			 than advising investment advisory clients, you must maintain a record of every
			 transaction in a security in which you or any of your advisory representatives
			 (as hereinafter defined) has, or by reason of any transaction acquires, any
			 direct or indirect beneficial ownership, except:
(A) Transactions effected in any account over
			 which neither you nor any of your advisory representatives has any direct or
			 indirect influence or control; and
(B) Transactions in securities which are
			 direct obligations of the United States.
The record must 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. The record may also contain a statement declaring that the reporting
				or recording of any transaction shall not be construed as an admission that you
				or any of your advisory representatives has any direct or indirect beneficial
				ownership in the security. You must record a transaction not later than ten
				days after the end of the calendar quarter in which the transaction was
				effected.
(ii)
			 You are "primarily engaged in a business or businesses other than advising
			 investment advisory clients" if, for each of your most recent three fiscal
			 years or for the period of time since organization, whichever is lesser, you
			 derived, on an unconsolidated basis, more than fifty percent of:
(A) Your total sales and revenues;
			 and
(B) Your income (or loss)
			 before income taxes and extraordinary items, from such other business or
			 businesses.
(iii) For
			 purposes of this subsection (1)(m) of this section the following definitions
			 will apply:
(A) "Advisory representative,"
			 when used in connection with a company primarily engaged in a business or
			 businesses other than advising investment advisory clients, means any partner,
			 officer, director, or employee of the investment adviser who participates in
			 any way in the determination of which recommendation shall be made, or whose
			 functions or duties relate to the determination of which securities are being
			 recommended prior to the effective dissemination of the recommendations; and
			 any of the following persons who obtain information concerning securities
			 recommendations being made by the investment adviser prior to the effective
			 dissemination of the recommendations or of the information concerning the
			 recommendations:
(I) Any person in a control
			 relationship to the investment adviser;
(II) Any affiliated person of a controlling
			 person; and
(III) Any affiliated
			 person of an affiliated person.
(B) "Control" means the power to exercise a
			 controlling influence over the management or policies of a company, unless such
			 power is solely the result of an official position with such company. Any
			 person who owns beneficially, either directly or through one or more controlled
			 companies, more than twenty-five percent of the voting securities of a company
			 will be presumed to control such company.
(iv) You will not be deemed to have violated
			 the provisions of this subsection (1)(m) because of your failure to record
			 securities transactions of any advisory representative if you establish that
			 you instituted adequate procedures, and used reasonable diligence to obtain
			 promptly, reports of all transactions required to be recorded.
(n) The following items related to
			 WAC
			 460-24A-145
			 and Part 2 of Form ADV:
(i) A copy of each
			 written statement, and each amendment or revision, given or sent to any of your
			 clients or prospective clients as required by WAC
			 460-24A-145;
(ii) Any summary of material changes that is
			 required by Part 2 of Form ADV that is not included in the written statement;
			 and
(iii) A record of the dates
			 that each written statement, each amendment or revision thereto, and each
			 summary of material changes was given or offered to any client or prospective
			 client who subsequently becomes a client.
(o) For each client that you obtained by
			 means of a solicitor to whom you paid a cash fee:
(i) Evidence of a written agreement to which
			 you are a party related to the payment of such fee;
(ii) A signed and dated acknowledgment of
			 receipt from the client evidencing the client's receipt of your disclosure
			 statement and a written disclosure statement of the solicitor; and
(iii) A copy of the solicitor's written
			 disclosure statement. The written agreement, acknowledgment, and solicitor
			 disclosure statement will be considered to be in compliance if such documents
			 are in compliance with Rule 275.206 (4)-3 of the Investment Advisers Act of
			 1940.
For purposes of this subsection, the term "solicitor" means any
				person or entity who, for compensation, acts as an agent of an investment
				adviser in referring potential clients.
(p) 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 including, but not limited to, electronic media that you
			 circulate or distribute, directly or indirectly, to two or more persons (other
			 than persons connected with you); provided however, 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 deemed to satisfy the requirements of this subsection.
(q) A file containing a copy of all written
			 communications received or sent regarding any litigation involving you or any
			 investment adviser representative or employee, and regarding any written
			 customer or client complaint.
(r)
			 Written information about each investment advisory client that is the basis for
			 making any recommendation or providing any investment advice to such client.
			 The written information about the investment advisory client must include, but
			 is not limited to, the client's age, other investments, financial situation and
			 needs, tax status, investment objectives, investment experience, investment
			 time horizon, liquidity needs, risk tolerance, and any other information the
			 client may disclose to the investment adviser in connection with such
			 recommendation or investment advice. On an annual basis, the investment adviser
			 must make a reasonable effort to confirm or update the written information
			 about each investment advisory client.
(s) Written information about each security
			 that you recommended a client buy or sell that is the basis for making any
			 recommendation or providing any investment advice to such client.
(t) 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.
(u) A file containing
			 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 you or your advisory representatives as that
			 term is defined in (m)(iii)(A) of this subsection, which file should contain,
			 but is not limited to, all applications, amendments, renewal filings, and
			 correspondence.
(v) If you
			 inadvertently held or obtained a client's securities or funds and returned them
			 to the client within three business days or forwarded third-party checks within
			 three business days, you must keep the following records relating to the
			 inadvertent custody:
(i) Issuer;
(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 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; and
(x) Mail
			 confirmation number, if applicable, or confirmation by client or sender of the
			 fund's or security's return.
(w) Copies, with signatures of your
			 appropriate signatory and the investment adviser representative, of each
			 initial Form U4 and each amendment to Disclosure Reporting Pages (DRPs) must be
			 retained by you (filing on behalf of the investment adviser representative) and
			 must be made available for inspection upon regulatory request.
(x) If you obtain possession of securities
			 that are acquired from the issuer in a transaction or chain of transactions not
			 involving any public offering that comply with the exception from custody under
			 WAC
			 460-24A-109(1),
			 you must keep the following records:
(i) A
			 record showing the issuer or current transfer agent's name, address, phone
			 number, and other applicable contact information pertaining to the party
			 responsible for recording client interests in the securities; and
(ii) A copy of any legend, shareholder
			 agreement or other agreement showing that those securities are transferable
			 only with prior consent of the issuer or holders of the outstanding securities
			 of the issuer.
(y) A
			 copy of a current written business continuity and succession plan adopted in
			 accordance with WAC 460-24A-126.
(z) Written policies and procedures required
			 to be established pursuant to WAC
			 460-24A-120,
			 460-24A-122, and
			 460-24A-125, and any
			 records required to be created or maintained thereunder.
(aa) A copy of a written code of ethics that
			 establishes standards of business conduct which reflect your fiduciary
			 obligations and those of your supervised persons.
(bb) Written physical and cyber security
			 policies and procedures that are reasonably designed to ensure the security and
			 integrity of your physical and electronic records.
(cc) A copy of the written advisory fee
			 billing information provided clients in accordance with WAC 460-24A-135, and a
			 written record of the services provided to each client during the billing
			 period.
(dd) Documentation of
			 client's authorization for each nondiscretionary securities
			 transaction.