Compliance Solutions for Investment Advisers

FAQs — Recordkeeping Related to Performance

 

What records is an investment adviser required to keep to support their performance calculations?

Advisers are required to keep all working papers and other records necessary to form the basis for or demonstrate the calculation of the performance or the rate of return of any or all managed accounts or securities recommendations in any advertisement. These record keeping requirements may be satisfied if the adviser retains account statements that show all debits, credits and other client transactions for the applicable period and all worksheets necessary to demonstrate the performance calculations. The SEC requires that these account statements be prepared contemporaneously with the period reported.

Can an investment adviser just keep the account statements for those accounts included in the performance?

No. All account statements for the periods for which performance is calculated must be kept, not just for accounts included in the composition of the performance figures advertised. SEC staff has recommended that advisers maintain third party records such as custodial or brokerage statements and reports prepared by independent auditors that confirm the accuracy of the internally generated records.

What records does the SEC usually request prior to a regulatory examination?

The SEC’s core initial request may include all or some of the following records:

  • A copy of any promotional brochures, pamphlets or other materials routinely furnished to prospective clients.
  • A copy of any advertisements (e.g., newspaper or magazine ads, radio scripts, etc.) used to inform or solicit clients during the past 2 years.
  • A copy of any newspaper or magazine article reprints disseminated to clients or prospective clients during the examination period.
  • A copy of performance figures or charts used in general advertising or in one-on-one presentations.
  • A description of any benchmark index, including any internally constructed benchmark, to which performance has been compared; the name of the entity that sponsors, produces, and/or distributes such index and/or any component of an internally constructed benchmark; and whether or not the index is price weighted.
  • A list and description of all composites, which details each composite’s inception date, account minimum and investment objective.
  • A statement of the account inclusion criteria your firm employs in the construction of any composite performance results.
  • A spreadsheet detailing the accounts included in each composite, including, internal calculations indicating beginning and ending asset values for each quarter, all capital additions and withdrawals (including the dates) and the quarterly performance return.
  • All custodial statements, including a statement that indicates the beginning asset value for the performance period.
  • A list of all composites that were terminated during the examination period.
  • A list of any composites that have been shown to clients whose composite construction criteria were changed on a retroactive basis; and, include the dates and reasons for the change.
  • All accounts not included in a composite.
  • Documentation that your firm is complying with GIPS, if applicable.

 

Important Information

The information contained in this Frequently Asked Questions is only a summary and is not intended to be a comprehensive analysis of the rules and regulations applicable to registered investment advisers. It is not intended to constitute legal or compliance consulting advice or apply to any one investment adviser’s particular situation. For more information, please see our Terms of Use.

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