Duck, Duck, Duck, DOL, DOL, DOL, SEC!

It seems like we have been going in circles, sitting and waiting for clarification around DOL and the fiduciary standard for so long that many may be ignoring an upcoming rule from the SEC that goes into effect on October 1, 2017.


I’ll give very quick, condensed version of the 165 page Rule Release from the SEC.  As expected with a 165-page rule amendment, IA Rule Release 4509 covers a lot of ground.  It addresses Form ADV changes, distributed and received document retention rule updates, and retention of books and record details covering inputs as to how performance calculations were performed.  That last piece is of vital importance and will catch many firms and advisors off-guard.  To be very precise, this portion of the rule release specifically augments the books and records rules within the Advisors Act (rule 275.204-2).

I’ll hone in a little on this books and records portion, which requires advisors to:

“make and keep supporting documentation that demonstrates performance calculations or rates of return in any written communications that the adviser circulates or distributes, directly or indirectly, to any person.”

Accomplishing this a high hurdle for nearly any investment professional to hit and, in my opinion, puts Excel basically out of business as the most widely used performance calculation system in the marketplace. Going forward, advisors will be hard-pressed to retain the necessary records in Excel or PowerPoint.


In an even larger leap, the rule amendment states that the requirement is retroactive.

“Advisers that circulate or distribute communications after the compliance date that include performance information, including information on performance that predates the effective date of these amendments, will be required to maintain materials listed in rule 204-2(a)(16) that demonstrate the calculation of the performance.”


Remember that the SEC has broad authority to oversee not only SEC Registered Investment Advisors but also mutual funds and Brokers and Dealers.

How prepared are you and your advisors to hit this elevated standard of reporting and record retention?

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