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Rule Origins
It is a requirement that all RIA firms maintain true and accurate books and records as it pertains to their advisory business.
Have you looked in your state Rules or SEC Advisers ACT to locate them?
Note: SEC registrants can go to the Investment Advisers Act of
1940 Section 204-2. Some states have adopted the NASAA model Rule 203(a)-2, adopted the SEC Rule or have written their own books and records requirements. A state's books and records requirements can usually be found in either; that state's specific "Securities ACT" or "Uniform Securities ACT" or
"Administrative Rules”. All books and records must be kept for a minimum of five years AFTER the year in which the document was created. Electronic or paper based files or both are allowed.
Microfiche is also allowed but the technology is not readily available.
Records Required
Does your firm keep the required financial records? Are you familiar with the financial records that are required to be maintained?
Note: o Journals reflecting cash receipts and distributions. o Ledgers reflecting assets and liabilities (Balance Sheet) o Income and expense accounts (Income Statement) o Checkbooks and bank statements o All bills paid and unpaid o Trial balances, financial statements and internal audit working papers
STEPS NEEDED
TO BECOME
COMPLIANT

Trade Error Policy Checklist
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Version Required
Do you keep current financial records by quarter and fiscal year end?
Note: Most examiners will ask for your firm's current fiscal year end balance sheet and income statement. Many will additionally ask for the most current quarter or even the most current month.
YES
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NO
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Email
It is a requirement that all RIA firms maintain records of their written communications. This includes emails. Does your firm maintain copies of all emails that pertain to the firm's advisory business?
Note: If you have remote employees your firm must have the ability to save and review these communications. Some firms hire outside vendors to archive their emails. Some of these vendors provide key word search lists to identify questionable email communications. While many states do not ask for proof of random email reviews, they can and the SEC definitely does ask for proof of review. Be prepared!
YES
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NO
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Texting
Texting is similar to emails in that it is a written communication.
Have you made arrangements to archive texts?
Note: Unless you hire an outside vendor to save these communications, or you have a way to save them yourself, avoid this type of communication. When your client texts you, reply by email or telephone. www.BeaconInvesting.com
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Media Use
It is a requirement that all RIA firms maintain records of all advertising. Are you saving copies of: o Websites o Blogs o Twitter o Facebook o Linkedln o YouTube o Radio shows o Television shows o Seminars o Newsletters o Ads in newspapers o Magazines
Trade Error Policy Checklist
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Definition of Advertising
Advertising is usually defined as communications that can be seen or heard by two or more people at one time. Have you separated your advertising files from you communications files?
Note: Communications that can be heard or viewed by two or more persons are considered to be advertisements. This includes blast emails. In certain situations based on fact and circumstance, presentations to a group of individuals would be excluded from the concept of advertising, such as a corporation's board of directors.
YES
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Performance Records
Advertising performance numbers of a back tested model or actual performance of a model portfolio or composites requires the adviser to keep records. Have you saved your performance number calculations?
Note: Records of all performance calculations must be kept and provided upon request to the regulator even if an outside party does the calculation for your firm. www.BeaconInvesting.com
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Trade Error Policy Checklist
ADV Maintenance
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Should your firm maintain copies of the Form ADV, Form ADV part 2 (includes ADV 2A and 2B) and Appendix 1 (Wrap Fee
Brochure)?
Is your firm required to review and amend these forms?
Note: YES! On an annual basis within 90 days of the end of your fiscal year end the CEO should review these forms
(document that review), amend the forms to correct any material changes (inaccurate information) and file the amended forms on the lARD system by March 31 (if your fiscal year end is December 31.) During the course of the year, interim amendments should be made within 30 days of a material changes.
Retention
YES
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Does your RIA firm maintain records of the delivery of Form
ADV, ADV Part 2 (includes ADV 2A and 2B) and Appendix 1
(Wrap Fee Brochure) for each new client and the annual delivery to existing clients?
NO
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All RIA firms must maintain records of the delivery of these forms. Under what circumstances and by what records would delivery be evidenced?
YES
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Calculations
All RIA firms are required to maintain records of the calculation and charging of fees. Have you saved all your fee calculations?
Note: Fees normally charged by an RIA firm include: advisory fees on assets under management (AUM), advisory fees on assets under advisement (AUA), financial planning fees, subscription fees, seminar fees and consulting fees. www.BeaconInvesting.com
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Trade Error Policy Checklist
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Performance Fees
Are SEC advisers restricted to charging performance fees to only qualified clients, qualified purchasers or QIBS?
Note: YES! Performance fees may be charged by SEC advisers,
BUT ONLY to qualified clients, qualified purchasers or QIBS. SECregistered investment advisers MAY NOT charge performance fees to accredited investors. Be careful if you operate a Reg. D pooled investment vehicle. You may be allowed to offer the pooled investment vehicle to accredited investors, but you may not charge them the performance fee.
Client Authorizations
Did you verify if your firm obtained client authorization to electronically debit management fees from the client's account?
Note: First, as previously asked, you must have authorization from your client to debit the fee from the custodian. Second, you must have a record of either the manual calculation OR the software-calculated fee. Some custodians have a spreadsheet for you to fill out. Always calculate your fee based on your contract. If you use software that adjusts for unsettled trades and unpaid dividends, be aware of that fact and why the number on which you calculate fees may be different than the value of assets on the same day as reflected in your client's custodial statement.
Calculation Reviews
Have you verified the accurate calculation of fees that are debited or billed to your client accounts?
Note: Maintain a file to prove you are randomly doublechecking the calculation of fees. Be vigilant on checking accounts with tiered fee schedules when assets appreciate and depreciate. If your custodian calculates the fees, be especially vigilant. Overcharging is a violation that will normally require refunding all excess fees and in some cases could create a fine to your firm for not checking the accuracy of calculations. www.BeaconInvesting.com
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Trade Error Policy Checklist
Billing Statement Delivery
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The SEC does not require a separate and distinct management fee billing invoice to your client every time your firm debits fees even though the custodian evidences that management fee debit on the client's custodial statement. Is it a good business practice to send one out anyway?
Note: We still see many SEC registered investment advisers sending out duplicate billing invoices even though not required. It is done as a "best practice,” which we encourage.
YES
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Past & Current Versions
During an audit, an examiner will request a copy of every
P&P manual in use during the exam period. That may include more than one “version" of the manual. Has your CEO been reviewing the book annually and updating it as required?
Note: Checklists, such as this one, are evidence that your firm and CEO are performing ongoing compliance work.(As long as the checklist is filled out.) One of the main purposes of our monthly checklists is to alert the CEO to cross reference any items from the checklist, applicable to your firm, with your P&P manual. If you discover that the checklist contains activities that apply to your business model that are not addressed in your
P&P manual, it is time to update your manual. This is done by the CEO of the firm. Updates should be documented (we encourage the use of “track changes”) to show the work done. The CEO should document on an annual basis that the entire P&P manual has been reviewed and updated.
www.BeaconInvesting.com
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Trade Error Policy Checklist
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Internal Reports
Reading your P&P manual makes the CEO aware of the reports and reviews that your P&P manual say your CEO is going to conduct each year on either a monthly, quarterly, annually or as needed basis. Has the CEO of your firm conducted a recent review of the firm's P&P manual?
Note: While having a P&P manual is required. Reading it and performing the stated reviews or compiling the stated reports are critical. How will you respond to an examiner's question that goes something like this: ''Your Policies and Procedures manual states on such and such page number that you were going to perform this activity or compile this report. I'd like to see the documentation that proves you have completed this activity.''
YES
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Electronic Fee Debit
Electronically debiting management fees from your client's accounts is custody. Does the SEC waive the Custody Rules as long as your firm follows the "safekeeping Rules"?
Note: YES. Your firm will not have to follow the "custody" Rule as long as your firm follows the "safekeeping" Rules; client assets are maintained at a qualified custodian, the custodian sends out quarterly statements to the client, at a minimum, detailing any management fees deducted from the account, your client authorized your firm and your custodian to make the deduction (in writing in your advisory contract and the custodial new account forms). www.BeaconInvesting.com
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Trade Error Policy Checklist
YES
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LPOA
It is a requirement that all RIA firms maintain records that provide any type of authority to the firm or its employees.
Do you archive your advisory contracts and have access to your client's custodial account opening documents?
Note: Your advisory contract provides discretionary, nondiscretionary or monitoring outside managers authority. If assets are held at a custodian that your firm does not have a relationship with your firm will have an LPOA (Limited Power of Attorney) to enter transactions on behalf of your client.
Debiting management fees electronically will be authorized in the custodial account papers and probably your advisory contract. You must be able to obtain and produce these documents. Powers of trustee, successor trustee or executor will be in the trust documents or your client.
YES
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Required Records
It is a requirement that all RIA firms operate under a Code of
Ethics. Have you read your Code of Ethics to learn what types of documents need to be kept and saved?
Note: First off, your firm must have a written Code of Ethics.
Additional records that the Code of Ethics prescribes include: o Access persons annual attestation statements, o Access persons personal reportable transactions for any accounts directly or indirectly beneficially owned, o Records evidencing review of the quarterly transaction statements of Access persons, o A list of all access persons for the last five years, o Records of any approvals for purchase or sale of securities as prescribed by the Code of Ethics, o Records of any violations of the Code of Ethics and any disciplinary actions taken. www.BeaconInvesting.com
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Trade Error Policy Checklist
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Client Data Organization
It is a requirement that all RIA firms be able to produce certain records, a.k.a. lists, upon request during an audit. List requests by an examiner may include: o Client roster, o Access persons, o Employee list by title and function, o Broker dealer or custodians used, o Solicitors, o Terminated clients, o Terminated employees, o Disciplined employees, o Threatened or pending litigation, o All service providers to your firm, o Clients of the firm that are related to employees of the firm, o Clients who have self-directed brokerage, o Soft dollar arrangements, o Financial planning clients within the last 12 months, o Private placement used, o Gifts to government officials or government entities, o Government solicitors, o Solicitors, o Boards of directors of public companies that employees of the RIA firm sit on, o Security cross-references.
If applicable, has your firm kept these lists?
YES
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NO
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Business Continuity Plan
It is a requirement that all RIA firms to have a Business
Continuity Plan (BCP.) Many firms incorporate this as part of the
Policies and Procedures manual although it is not required.
Do you have one? Do you review it annually with your employees? Do you test it to see if it works?
www.BeaconInvesting.com
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Trade Error Policy Checklist
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Trade Information
It is a requirement that all RIA firms to record and archive their client transactions in order to provide to an examiner during an audit. Are you keeping trade tickets (even if you enter trades electronically,) trade confirmations, trade blotters, client monthly custodial statements.
YES
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NO
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Trade Blotters
SEC RIA firms must prepare trade blotters in a specific format provided by the SEC that your custodian may not have.
Will you be able to download trade blotter information from your custodian into an Excel spreadsheet format?
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Proxy Process
RIA firms that vote Proxy have document retention and Policies &
Procedures requirements. Has your firm complied with the requirements?
Note: Custodial documents should indicate to send proxy to the adviser. Form ADV 2A Item 17 should state your firm votes Proxy.
Your Policies & Procedures manual should have a section on Proxy voting procedures.
Solicitors
It is a requirement that all RIA firms working with solicitors maintain records according to the Rules of solicitation. Any solicitor that gets paid a fee either directly or indirectly must have a solicitor’s "agreement" with your firm. If the solicitor is not an employee of your firm then you will also need a solicitors "disclosure document. Even if your firm is an SEC registered firm the states control the registration of solicitors as lARs. Every RIA firm must adhere to the registration requirements (if any) of the states. The solicitor, if required to provide a "disclosure document" should have the prospect/future client sign it and then the solicitor should send you the original or a copy for your files. The prospect/future client should receive this document and sign within a reasonable time AFTER the solicitation.
Are your files in order? www.BeaconInvesting.com
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Trade Error Policy Checklist
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Due Diligence
It is a requirement that all RIA firms do due diligence on any investments, Third Party Money Manager (TPMM) or outside vendor used to handle or manage client non-public information.
Do you have files on this topic that include background checks for TPMM or cyber security measures for data storage?
Note: Please review our previous checklist or webinar on this subject provided February 2015.
Risk Assessment
SEC registered firms will be asked to provide a risk assessment document which maps risks back to a firm policy or procedure that address that risk. Many risks are addressed in the firm's
Policies & Procedures manual and require regular monitoring a.k.a. “testing." Are you prepared for this request?
Note: You can Google SEC + risk assessment to find examples of frameworks to create this document. It is not required by
Rule, but you will be asked for it by the examiner. There is no required format. www.BeaconInvesting.com
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