Anyone looking into a financial advisor’s office or file server will notice it right away: hundreds, even thousands of files and records that detail every financial decision, action and communication the advisor has ever made.
Do financial advisors need to hang onto every single document?
Sort of. The SEC has mandated that financial advisors must keep certain records under the Investment Advisor Act of 1940 (Advisors Act) and Rule 204-2. This can create quite a collection of records for a financial firm. While packing away all these records isn’t wrong, it can keep advisors from being their most effective.
Record collecting can be kept in check by knowing the rules of record retention for financial advisors. Most advisory business records (trade tickets, confirmations, written communication) are required to be kept for at least five years. But wait—there’s more!
- For the first two years of these five-year periods, the records should be stored in the advisor’s offices.
- For the remaining three years, records should be stored in an easily accessible place.
Organizational records (partnership articles and amendments, stock certificate books of preceding and current advisors, minute books) need to be maintained at the advisor’s principal office and preserved until at least three years after the organization’s termination.
Advisors who discontinue their businesses are still responsible—and must arrange—for the preservation and the storage of the records. The advisor must also notify the SEC of the precise location of the records.
Financial advisors can’t simply overcome their collecting habits and downsize their records. However, they can organize their records cost-effectively by making use of enterprise content management (ECM) systems that automate electronic record retention schedules.
An ECM system enables a firm to securely store records and publish them to unalterable media. Firms that use ECM can:
- Automate records retention and destruction in compliance with SEC 17a mandates.
- Instantly retrieve information instead of sending staff to offsite storage facilities.
- Expedite audits by easily producing records on demand.
- Simplify compliance with business continuity directives by securing paper and electronic files.
- Redact sensitive or confidential client information.
- Prevent departing employees from leaving with customer files.
- Strictly monitor system security.
- Track when and by whom documents are accessed.
- Record what staff members do with the documents they retrieve.
Many advisors have learned to live with record hoarding by constantly monitoring all aspects of records management. But it doesn’t have to be that way. Learn to treat your compulsion with the latest technology and prevent mismanaged record retention schedules from costing you hundreds of thousands of dollars in fines.
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Written by David Ng, Laserfiche