10 Pa. Code § 304.012 - Investment adviser required records
(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).
(b) For purposes of subsection (a)(12) and
(13):
(1) A transaction shall be recorded not
later than 10 days after the end of the calendar quarter in which the
transaction was effected.
(2) An
investment adviser is "primarily engaged in a business or businesses other than
advising investment advisory clients" when, for each of its most recent 3
fiscal years or for the time since organization, whichever is less, the
investment adviser derived, on an unconsolidated basis, more than 50% of the
following from other business or businesses:
(i) Total sales and revenues.
(ii) Income, or loss, before income taxes and
extraordinary items.
(3)
An investment adviser shall implement adequate procedures and use reasonable
diligence to promptly obtain reports of all transactions required to be
recorded.
(c) If an
investment adviser subject to subsection (a) has custody, the records required
to be made and kept under subsection (a) also include all of the following:
(1) A journal or other record showing all
purchases, sales, receipts and deliveries of securities (including certificate
numbers) for all accounts and all other debits and credits to the
accounts.
(2) A separate ledger
account for each client showing all purchases, sales, receipts and deliveries
of securities, the date and price of each purchase and sale, and all debits and
credits.
(3) A copy of
confirmations of all transactions effected by or for the account of any
client.
(4) A record for each
security in which any client has a position, which record shall show the name
of each client having any interest in each security, the amount or interest of
each client, and the location of each security.
(5) A copy of documents executed by the
client, including a limited power of attorney, under which the adviser is
authorized or permitted to withdraw a client's funds or securities maintained
with a custodian on the adviser's instruction to the qualified
custodian.
(6) A copy of each of
the client's quarterly account statements, as generated and delivered by the
qualified custodian. If the adviser also generates a statement that is
delivered to the client, the adviser shall also maintain copies of the
statements along with the date the statements were sent to the
clients.
(7) If an investment
adviser has custody because it advises a pooled investment vehicle and is
relying on the exception from the minimum net worth requirement in §
303.042(a)(3)(ii)
(relating to investment adviser capital requirements), the adviser shall also
keep:
(i) True, accurate and current account
statements.
(ii) Documentation of
the date of the audit .
(iii) A copy
of the audited financial statements .
(iv) Evidence of the mailing of the audited
financial to all limited partners, members or other beneficial owners within
120 days of the end of its fiscal year.
(8) Records relating to the adviser's
appointment as trustee and the identities of the beneficial owners of the trust
if an investment adviser acts as trustee for a beneficial trust under §
102.021(a).
(d) An
investment adviser subject to subsection (a) that gives investment supervisory
or management service to a client shall, with respect to the portfolio being
supervised or managed and to the extent that the information is reasonably
available to or obtainable by the investment adviser, make and keep true,
accurate and current:
(1) A separate record
for each client showing the securities purchased and sold, and the date, amount
and price of each purchase and sale.
(2) For each security in which any client has
a current position, information from which the investment adviser can promptly
furnish the name of each client, and the current amount or interest of the
client.
(e) Books or
records required under this section may be maintained by the investment adviser
so that the identity of a client to whom the investment adviser gives
investment supervisory services is indicated by numerical or alphabetical code
or some similar designation.
(f) An
investment adviser subject to subsection (a) shall maintain all of the
following:
(1) Books and records required to
be made under subsections (a), (b) and (c)(1) (except for books and records
required to be made under subsection (a)(11) and (16)) in an easily accessible
place for at least 5 years from the end of the fiscal year during which the
last entry was made on record, the first 2 years being in the principal office
of the investment adviser.
(2)
Partnership articles and any amendments, articles of incorporation, charters,
minute books, and stock certificate books of the investment adviser and of any
predecessor, in the principal office of the investment adviser for at least 3
years after termination of the enterprise.
(3) Books and records required to be made
under subsection (a)(11) and (16) in an easily accessible place for at least 5
years, the first 2 years being in the principal office of the investment
adviser, from the end of the fiscal year during which the investment adviser
last published or otherwise disseminated, directly or indirectly, the notice,
circular, advertisement, newspaper article, investment letter, bulletin or
other communication including by electronic media.
(4) Notwithstanding other record preservation
requirements of this section, the following records or copies at the business
location of the investment adviser from which the customer or client is being
provided or has been provided with investment advisory services:
(i) Records required to be preserved under
subsections (a)(3), (7)-(10), (14), (15), (17)-(19) and (22)-(24), (b) and
(c).
(ii) Records or copies
required under subsection (a)(11) and (16) which records or related records
identify the name of the investment adviser representative providing investment
advice from that business location, or which identify the business location's
physical address, mailing address, e-mail address or telephone
number.
(g) An
investment adviser subject to subsection (a), before ceasing to do business as
an investment adviser, shall:
(1) Arrange and
be responsible for the preservation of the books and records required to be
maintained and preserved under this section for the remainder of the period
specified in this section.
(2)
Notify the Department in writing of the exact address where the books and
records will be maintained during the period.
(h) Record storage requirements are as
follows:
(1) Records required to be
maintained and preserved for the required time by this section shall:
(i) Be able to be immediately produced or
reproduced.
(ii) Be maintained and
preserved in at least one of the following manners:
(A) Paper or hard copy form, as those records
are kept in their original form.
(B) Micrographic media, including microfilm,
microfiche or any similar medium.
(C) Electronic storage media, including any
digital storage medium or system that meets the terms of this
section.
(2)
The investment adviser shall:
(i) Arrange and
index the records in a way that permits easy location, access and retrieval of
any particular record.
(ii) Provide
promptly any of the following which the Department by its examiners or other
representatives may request:
(A) A legible,
true and complete copy of the record in the medium and format in which it is
stored.
(B) A legible, true and
complete printout of the record.
(C) A means to access, view and print the
records.
(iii) Store
separately from the original a copy of the record for the time required for
preservation of the original record.
(3) For records created or maintained on
electronic storage media, the investment advisor shall establish and maintain
procedures to:
(i) Maintain and preserve the
records to reasonably safeguard them from loss, alteration or
destruction.
(ii) Limit access to
the records to properly authorized personnel and the Department , including its
examiners and other representatives.
(iii) Reasonably ensure that any reproduction
of a nonelectronic original record on electronic storage media is complete,
true and legible when retrieved.
(i) A book or other record made, kept,
maintained and preserved in compliance with Rules 17a-3 (17 CFR
240.17a-3) (relating to records to be made by
certain exchange members, brokers and dealers) and 17a-4 (17 CFR 240.17a-4)
(relating to records to be preserved by certain exchange members, brokers and
dealers) under the Securities Exchange Act of 1934 (15 U.S.C.A. §§
78a-78qq), which is substantially the
same as the book or other record required to be made, kept, maintained and
preserved under this section, is considered to be made, kept, maintained and
preserved in compliance with this section.
(j) The requirements of this section do not
apply to an investment adviser registered under section 301 of the act
(70 P.S. §
1-301) that meets all of the
following conditions:
(1) Has its principal
place of business in a state other than this Commonwealth.
(2) Is licensed as an investment adviser in
the state where it has its principal place of business .
(3) Is in compliance with the recordkeeping
requirements of the state in which it has its principal place of
business .
Notes
The provisions of this § 304.012 amended under sections
304(a), (b) and (e) and 609(a) of the Pennsylvania Securities
This section cited in 10 Pa. Code § 102.021 (relating to definitions).
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