RIA Compliance and Practice Management Blog

RIA Books and Records Requirements: Correspondence vs. Advertising

Posted by RIA in a Box

Apr 6, 2015 11:12:28 AM

As a registered investment adviser (RIA) firm, one major component of audit preparation is keeping compliant books and records. Rule 204-2 under the Investment Advisers Act of 1940 requires RIA firms to make and keep true, accurate and current books and records relating to its investment advisory business In addition, many states have adopted similar books and records rules. While the book and record keeping compliance responsibilities cover a wide spectrum of documents, transactions, and information, in today's post we want to focus specifically on correspondence and advertising files.

In general, an investment advisory firm is required to archive all written communications received and sent by the firm relating to recommendations or advice, transactions of securities or funds, and all buy or sell orders. All client-centered communication that is sent or received by an RIA firm in any format is generally categorized as either correspondence or advertising. Regardless of categorization, each item must be archived and maintained in a specific correspondence or customer file, or conversely in a specified advertising file.

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The definitions of correspondence and advertising are quite similar with the main difference being the number of persons the communication is intended for. This recipient threshold separates the two categories, therefore distinguishing how each must be filed and archived. In general, advertising is defined as any item sent to two or more persons. In most circumstances at the state regulatory level, communication that goes out to more than one person is considered advertising and must be recorded in the designated advertising file. However, for SEC-registered RIA firms, Rule 204-2 requires all advisory firms to retain all communications that the firm has circulated to 10 or more persons in the designated advertising file.

One particular area of advertising that receives a lot of attention at both the SEC and state regulatory levels is performance advertising. Firms that with to utilize performance advertising should exercise great caution. Performance marketing is likely to increase a firm's audit risk and can also greatly lengthen the examination process as the regulator seeks to confirm that the firm has fully complied with all of the performance advertising regulatory compliance requirements.

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As it relates investment adviser books and records compliance requirements, it is better to be safe than sorry. As RIA compliance consultants, we want to highlight the importance of an RIA firm properly archiving and recording all client related items coming into and going out of the firm as either advertising or correspondence. In general, all such items must be maintained and retrievable for a period of five years.


Topics: RIA Compliance

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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