The financial, order, communication, client, marketing and compliance records advisers must keep, how long each is held and what happens with texts, custody and closure

An investment adviser must keep accurate books and records of its business, including its financial accounts, a record of every order it places, its written communications about advice and trades, its client agreements, its advertisements, its compliance policies and its staff’s personal trading reports. Most of these records must be kept for at least five years, with the first two years in an easily accessible place in the adviser’s office.

For SEC-registered advisers, the requirements are set out in SEC Rule 204-2, the books and records rule under the Investment Advisers Act of 1940. State-registered advisers follow similar rules adopted by their state, most of which are based on NASAA’s model recordkeeping rule.

This guide sets out the main categories of required records, how long each must be kept, the extra records needed when an adviser has custody, the rules on electronic storage and text messages, what happens when an adviser closes, how the adviser rules differ from broker-dealer rules, worked examples, the exam traps and five practice questions.

Why Recordkeeping Is Required

Records are how regulators check what an adviser has actually done. Without them, an examiner cannot confirm that the adviser charged the agreed fees, placed trades suitable for its clients or treated clients fairly when allocating investments.

Section 204 of the Advisers Act requires registered advisers to make and keep the records the SEC prescribes and to make them available for examination at any time. The SEC can arrive for an examination with little or no notice, and an adviser must be able to produce what is asked for.

Good records also protect the adviser. When a client disputes a trade or a fee, the adviser’s records are its best evidence of what was agreed and what happened.

Where This Topic Appears on the Exams

Recordkeeping is tested in the laws and regulations section of the Series 65 and on the Series 66. Questions usually ask how long records must be kept, where they must be held, or whether a particular document is a required record.

FRC’s Series 65 Exam Preparation course covers adviser books and records alongside the other Advisers Act rules, and the Series 65 needs no sponsoring firm. The SIE Examination Preparation course introduces the recordkeeping framework for broker-dealers that sits alongside it.

Every FRC course can be spread across interest-free monthly payments, so cost is no reason to delay. Recordkeeping questions turn on a handful of numbers, so they are quick marks once those numbers are learned.

Financial and Accounting Records

An adviser must keep the core accounting records of its business. These include journals, such as cash receipts and disbursements, a general ledger, and the bank statements and cancelled checks for its business accounts.

It must also keep bills and statements, whether paid or unpaid, and its trial balances, financial statements and internal audit working papers. These records show the adviser’s own financial position.

Regulators use them to check that the adviser is solvent and that its fees and expenses match what clients were told. State-registered advisers subject to minimum net worth requirements rely on these records to show they meet them.

Order Records

An adviser must keep a memorandum of every order it gives for the purchase or sale of a security, and of every instruction it receives from a client about a trade. The memorandum must show the terms and conditions of the order and whether it was placed under discretionary authority.

It must also identify the person at the adviser who recommended the transaction and the person who placed the order. The account, the date of entry and the broker-dealer or bank that executed the trade must be recorded as well.

These records let examiners trace each trade from recommendation to execution. They are central to checking best execution, trade allocation and whether discretion was properly authorized.

Written Communications

An adviser must keep originals of the written communications it receives and copies of those it sends relating to its advice, to the receipt or delivery of client funds and securities, and to the placing and execution of orders. These include communications with clients, brokers and other parties.

Electronic communications count. Emails, text messages and messages sent through apps are written communications when they relate to these subjects, and must be kept in the same way as letters.

General business correspondence that has nothing to do with advice, client funds or trading is not covered by this requirement. The test is what the communication is about, not the medium it uses.

Client Documents

An adviser must keep a list of all accounts in which it has discretionary power, and copies of the powers of attorney and other documents that grant that authority. A discretionary account without supporting paperwork is one of the first things examiners look for.

It must also keep all written agreements with clients, such as advisory contracts. FRC’s guide to what an investment advisory contract must include explains the terms those contracts must contain.

The adviser must keep copies of its brochure and brochure supplements, each amendment, and a record of when each was given or offered to clients. Advisers that deal with retail investors must also keep their relationship summary, Form CRS, and records of its delivery.

Marketing Records

An adviser must keep a copy of every advertisement it distributes to more than one person, along with the records needed to support any performance figures it shows. It must keep the working papers and documents that demonstrate how performance was calculated.

Under the SEC Marketing Rule, it must also keep records of the disclosures it gave with testimonials and endorsements, and of any written agreements with paid promoters. Records supporting third-party ratings must be kept as well.

Performance records must generally be kept for five years from the end of the fiscal year in which the advertisement was last published. FRC’s guide to whether an investment adviser can use testimonials explains the marketing conditions these records support.

Compliance and Code of Ethics Records

An SEC-registered adviser must keep a copy of its compliance policies and procedures that are in effect, or were in effect at any time in the past five years, together with records documenting its annual review. FRC’s guide to what Rule 206(4)-7 requires of an investment adviser explains those obligations.

It must also keep its code of ethics and records relating to it. These include the personal holdings reports that access persons file when they join and annually afterwards, and the quarterly reports of their personal securities transactions.

Records of any violations of the code, and of the action taken, must be kept too. So must records of approvals given to access persons to buy securities in initial public offerings or private placements.

The Main Categories at a Glance

The table summarizes the categories most exam questions draw on. The detailed list in Rule 204-2 is longer, but these headings cover the records candidates are expected to recognize.

How Long Records Must Be Kept

Most records must be kept for at least five years from the end of the fiscal year in which the last entry was made on the record. For the first two of those years, they must be kept in an appropriate office of the adviser.

Some records are kept for longer. Partnership articles, articles of incorporation, charters, minute books and stock certificate books must be kept in the adviser’s principal office until at least three years after the business ends.

The five-year period is the number the exam tests most often. Remember that it runs from the end of the fiscal year of the last entry, not from the date the record was created.

Extra Records When the Adviser Has Custody

An adviser with custody of client funds or securities must keep additional records. These include a journal of all securities transactions in client accounts and a separate ledger account for each client showing every purchase, sale, receipt and delivery.

It must also keep copies of trade confirmations and a record showing each client’s interest in each security and where the securities are held. These records allow the adviser, its auditor and regulators to reconcile what the custodian holds with what each client owns.

FRC’s guide to what custody is for an investment adviser explains when custody arises and the safeguards that apply. The extra records are part of those safeguards.

Electronic Storage

Advisers may keep their records electronically rather than on paper. The rule sets conditions designed to make sure electronic records are as reliable as paper ones.

The records must be arranged and indexed so they can be located easily, and the adviser must be able to produce them promptly, including a legible copy, when the SEC asks. The adviser must also have safeguards to protect the records from loss, alteration or destruction, and to limit access to authorized people.

Most advisers today use electronic archiving systems for emails and documents. The key test is whether the adviser can find and produce the record quickly when required.

Text Messages and Off-Channel Communications

Business communications sent through personal phones, text messages and messaging apps are a growing problem for regulators. If staff discuss client advice or trades on channels the firm does not capture, the firm cannot keep the required records.

Since 2021, the SEC has brought a long series of enforcement actions against broker-dealers and investment advisers for failing to preserve these off-channel communications, with combined penalties running into billions of dollars. Firms have been fined even where no client was harmed, because the recordkeeping failure itself is a violation.

The practical lesson is that advisers must either capture every channel their staff use for business or prohibit the use of channels they cannot capture. Policies must be enforced, not just written down.

The State Rules

State-registered advisers keep records under their state’s rules, most of which follow NASAA’s model recordkeeping rule. The categories closely match the SEC’s, and the standard retention period is also five years, with the first two in the adviser’s office.

States may add their own requirements. Some require additional financial records to support minimum net worth or bonding requirements, or records relating to financial planning services.

The state Administrator has the power to inspect a state-registered adviser’s records at any time. Federal covered advisers must keep records under the SEC rule, and states generally cannot impose additional books and records requirements on them beyond those of their home state.

When an Adviser Closes

An adviser that stops doing business must still preserve its records for the remaining retention period. It cannot simply discard them when it closes.

When it withdraws its registration on Form ADV-W, the adviser must state where its books and records will be kept and who will hold them. Regulators can then locate the records if they are needed for an investigation or a client dispute.

If the adviser is acquired by another firm, the records usually pass to the new owner. The obligation to keep them for the full period continues.

Adviser Records vs Broker-Dealer Records

Broker-dealers follow different recordkeeping rules, under SEC Rules 17a-3 and 17a-4. Some broker-dealer records, such as blotters and customer account ledgers, must be kept for six years, while others, including most communications, must be kept for three years, with the first two in an easily accessible place.

Investment advisers use a simpler standard of five years for most records. A dual registrant must follow both regimes, applying the broker-dealer rules to its brokerage records and the adviser rules to its advisory records.

The difference is a common source of exam questions. If a question is about an investment adviser, the answer is usually five years, with two in the office.

Worked Example: The Old Advertisement

An adviser last published a performance advertisement in March 2021. Its fiscal year ends on 31 December.

The five-year retention period for the advertisement and its supporting records runs from the end of the fiscal year in which it was last published, which is 31 December 2021. The records must be kept until at least 31 December 2026.

For the first two years, until the end of 2023, they had to be kept in the adviser’s office. After that, they can be held elsewhere, provided they can still be produced promptly.

Worked Example: The Text Message

An adviser representative receives a text from a client on her personal phone asking her to sell a holding. She replies confirming she will do it and places the trade.

The texts are written communications relating to the placing of an order. They are required records and must be preserved.

If the firm has no system to capture texts on personal phones, it has a recordkeeping failure. It should either provide a captured messaging channel or prohibit staff from using texts for business, and enforce that policy.

Worked Example: The Closing Firm

A small state-registered adviser decides to close after its founder retires. It files Form ADV-W to withdraw its registration.

On the form, it must state where its records will be kept for the remainder of the retention period. The founder arranges for an accounting firm to hold them securely.

If a former client later disputes a fee, the records can still be located. Closing the business does not end the duty to keep them.

The Exam Traps

The first trap is using the wrong retention period. For investment advisers, most records are kept for five years from the end of the fiscal year of the last entry, with the first two years in the office.

The second trap is counting the five years from the date the record was created. The period runs from the end of the fiscal year in which the last entry was made.

The third trap is assuming that text messages and emails are not records. Electronic communications about advice, client funds or orders are required records.

The fourth trap is applying broker-dealer retention periods to advisers. Broker-dealer rules use three-year and six-year periods, while advisers generally use five.

FRC’s guide to Series 65 ethics and laws questions and exam traps covers more traps in this area. For the full list, see FRC’s guide to Series 65 exam traps and common mistakes.

A Memory Aid

Remember “five and two.” Five years in total from the end of the fiscal year of the last entry, with the first two years in the adviser’s office.

For what counts as a record, remember “money, orders, advice, clients, ads and rules.” Those are the subjects that make a document a required record.

Practice Questions

Question one: for how long must an investment adviser generally keep its required records? At least five years from the end of the fiscal year in which the last entry was made.

Question two: for how much of that period must the records be kept in the adviser’s office? The first two years.

Question three: is a text message from a client asking the adviser to sell a security a required record? Yes, written communications relating to the placing of orders must be kept, whatever the medium.

Question four: how long must an adviser keep its articles of incorporation and minute books? Until at least three years after the business ends.

Question five: may an adviser keep its records electronically? Yes, provided they are indexed, easy to locate, protected from loss or alteration and can be produced promptly.

Related Questions

Recordkeeping is part of the wider compliance framework every adviser must maintain. FRC’s guide to what Form ADV is explains the registration filings that sit alongside an adviser’s books and records.

Get Exam-Ready

Recordkeeping questions reward candidates who know the retention periods and can recognize a required record when they see one. Once “five and two” is fixed, these become some of the quickest marks on the exam.

The FRC dictionary is more than a dictionary. It is a library of explainer videos, written explanations and on-page quizzes covering the FINRA and SEC rules you are tested on, so you can open any term and go deeper whenever a question catches you out.

Study With FRC

FRC’s programs and memberships are open to everyone. Whether you are preparing for the Series 65, the Series 7, the SIE or a combination, structured exam preparation turns topics like books and records into marks you can rely on.

FRC’s Professional Membership adds verified progress and a Digital Profile, so when you apply to advisory and compliance roles, hiring managers can see your exam progress and the knowledge you are building, not just read about it on a resume.

Your Next Step

An investment adviser must keep its financial records, order records, written communications, client documents, marketing records and compliance records, and extra records if it has custody. Most must be kept for at least five years from the end of the fiscal year of the last entry, with the first two years in the adviser’s office.

Remember “five and two,” and you will be ready for every version of this question the exam can ask.