NASAA Series 65, Uniform Investment Adviser Law ExaminationLaws, Regulations, and Guidelines, including Prohibition on Unethical Business PracticesMedium
An investment adviser (IA) has established a new policy that all client communications, including emails and instant messages, must be retained for a minimum of five years. This policy is in accordance with which of the following regulatory requirements?
- AThe Uniform Securities Act.
- BThe Sarbanes-Oxley Act of 2002.
- CThe Investment Advisers Act of 1940.
- DThe Securities Exchange Act of 1934.
Show answer & explanationAnswer & explanation
Correct answer: C. The Investment Advisers Act of 1940.
The Investment Advisers Act of 1940, specifically Rule 204-2 (the 'books and records' rule), mandates that SEC-registered investment advisers retain certain records, including communications, for a minimum of five years.
Why the other options are wrong
- A. The Uniform Securities Act governs state-registered IAs, with similar but often state-specific recordkeeping rules.
- B. Sarbanes-Oxley primarily addresses corporate governance and accounting scandals.
- D. The Securities Exchange Act primarily governs broker-dealers and exchanges.
IA Recordkeeping Requirements
Regulations, primarily under the Investment Advisers Act of 1940 and Uniform Securities Act, that mandate investment advisers retain specific business records, including client communications, for a set period (e.g., five years).
- Governed by Investment Advisers Act of 1940 (SEC) and Uniform Securities Act (State).
- Includes client communications, trade records, financial statements.
- Minimum retention period is typically five years.
- Records must be readily accessible for two years.
Memory trick: Keep your ADVISORY records for a FIVE-YEAR FIX!