DFI-Sec 5.03(1)(q) (q) Copies bearing signatures of the investment adviser’s appropriate signatory and the investment adviser representative, of each initial Form U-4 and each amendment to the disclosure reporting pages of Form U-4. These documents shall be retained by the investment adviser who prepared the filing on behalf of the investment adviser representative.

DFI-Sec 5.03(2) (2) Each registered investment adviser who renders investment supervisory or management service to any client shall, with respect to the portfolio being supervised or managed and to the extent that the information is reasonably available to or obtainable by the investment adviser, maintain and keep current:

DFI-Sec 5.03(2)(a) (a) Records for each client showing the securities purchased or sold on advice of the adviser, and the date, amount, and price of each purchase and sale.

DFI-Sec 5.03(2)(b) (b) Records identifying the client and the current amount or interest owned by each client for each security in which any client has a current position.

DFI-Sec 5.03(2)(c) (c) Written information concerning a client’s net worth, annual income and other financial information, investment objectives and experience and such other information necessary and relied upon by the investment adviser to determine the suitability of any investment recommendation or investment advice to the client. The written information shall be updated when the investment adviser receives information from the client that results in material changes to the client’s annual income, net worth, investment objectives or other changes to information affecting the investment adviser’s ability to make suitable recommendations for the client as required under s. DFI-Sec 5.06 (4).

DFI-Sec 5.03(3) (3) Every registered investment adviser shall preserve for a period of not less than 5 years, the first 2 years in an easily accessible place, all records required under subs. (1) and (2) except that records respecting an account required under sub. (1) (i), (j) and (k) shall be preserved by the investment adviser for a period of not less than 5 years from the end of the first fiscal year during which the last entry was made on such record and records required under sub. (1) (a) shall be preserved by the investment adviser for a period of not less than 3 years after withdrawal or expiration of its registration in this state. The record may be retained by computer if a printed copy of the record can be prepared immediately upon request. In the event a record has been preserved for 2 years as required in this subsection, a microfilm copy may be substituted for the remainder of the required period.

DFI-Sec 5.03(4) (4) Every branch office as defined in s. DFI-Sec 1.02 (7), of a registered investment adviser whose principal office is in this state, shall prepare and keep current the records described in subs. (1) (c), (f), (g), (h), (k) and (L) and (2) (a), (b) and (c).

DFI-Sec 5.03(5) (5) The records required in sub. (4) shall be preserved at the branch office for a period of not less than 3 years, the first 2 years in an easily accessible place. Upon closing of the branch office, the records shall be transferred to the home office for the duration of the required retention period. The record may be retained by computer if a printed copy of the record can be prepared immediately upon request. If a record has been preserved for the first year of the 3-year period required in this subsection, a microfilm copy may be substituted for the remainder of the required retention period.

DFI-Sec 5.03(6) (6) The requirements of subs. (1) to (5) shall not apply to any investment adviser that has its principal office in a state other than this state, provided that the investment adviser is registered in that state and is in compliance with that state’s books and records requirements, if any.

DFI-Sec 5.03(7) (7) The division may by order exempt any investment adviser from all or part of the requirements of this section, either unconditionally or upon specified conditions, if by reason of the special nature of its business, the division finds that issuance of the order is necessary or appropriate in the public interest or for the protection of investors.

DFI-Sec 5.03 History History: Cr. Register, December, 1977, No. 264, eff. 1-1-78; r. and recr. (1), renum. (2) and (3) to be (3) and (4) and am., cr. (2), Register, December, 1980, No. 300, eff. 1-1-81; am. (3), Register, December, 1984, No. 348, eff. 1-1-85; am. (1) (h), Register, December, 1989, No. 408, eff. 1-1-90; am. (1) (intro.), renum. (4) to be (6), cr. (4) and (5), Register, December, 1991, No. 432, eff. 1-1-92; am. (1) (intro.), renum. (6) to be (7), cr. (6), Register, December, 1992, No. 444, eff. 1-1-93; am. (4), Register, December, 1994, No. 468, eff. 1-1-95; cr. (1) (m) and (n), Register, December, 1995, No. 480, eff. 1-1-96; am. (1) (intro.), renum. (2) to (5) and (7) to be (3) to (6) and (8) and am. (5) and (6), cr. (2) and (7), r. (6), Register, December, 1998, No. 516, eff. 1-1-99; cr. (1) (o), am. (5), Register, December, 1999, No. 528, eff. 1-1-00; am. (1) (h) and (5), renum. (1) (o) to be (3) (c) and am., cr. (1) (o), Register, December, 2000, No. 540, eff. 1-1-01; emerg. cr. (1) (p) and (q), eff. 1-1-01; CR 01-025: cr. (1) (p) and (q), Register, July, 2001, No. 547, eff. 8-1-01; CR 04-074: r. (2), renum. (3) to (8) to be (2) to (7) Register December 2004 No. 588, eff. 1-1-05; correction in (4) made under s. 13.93 (2m) (b) 7., Stats., Register December 2004 No. 588; CR 08-077: am. (1) (intro.), (f) to (k), (m) to (o) and (2) to (6) Register December 2008 No. 636, eff. 1-1-09; correction in (4) made under s. 13.92 (4) (b) 7., Stats., Register December 2008 No. 636.

DFI-Sec 5.035 DFI-Sec 5.035 Investment advisors with custody.

DFI-Sec 5.035(1) (1) Except as provided in sub. (2), and subject to the definitions in sub. (4), it shall be a prohibited business practice for an investment adviser registered, or required to be registered, to have custody of client funds or securities unless the investment adviser complies with all of the following:

DFI-Sec 5.035(1)(a) (a) The investment adviser notifies the division promptly in writing on Form ADV that the investment adviser has or may have custody.

DFI-Sec 5.035 Note Note: Form ADV is available online at the website of the Investment Adviser Registration Depository, www.iard.com, and may be filled out and submitted electronically.

DFI-Sec 5.035(1)(b) (b) A qualified custodian maintains the funds and securities in a separate account for each client under that client’s name or in accounts that contain only client funds and securities, under the investment adviser’s name as agent or trustee for the clients.

DFI-Sec 5.035(1)(c) (c) When an investment adviser opens an account with a qualified custodian on a client’s behalf, either under the client’s name or under the investment adviser’s name as agent, the investment adviser shall notify the client in writing of the qualified custodian’s name, address, and the manner in which the funds or securities are maintained, promptly when the account is opened and following any changes to this information.

DFI-Sec 5.035(1)(d) (d) Account statements shall be sent to clients in compliance with one of the following:

DFI-Sec 5.035(1)(d)1. 1. If client funds or securities are held by a qualified custodian, the investment adviser shall have a reasonable basis for believing that the qualified custodian sends an account statement, at least quarterly, to each client for which it maintains funds or securities, identifying the amount of funds and of each security in the account at the end of the period and setting forth all transactions in the account during that period.

DFI-Sec 5.035(1)(d)2. 2. If client funds or securities are held by the adviser:

DFI-Sec 5.035(1)(d)2.a. a. The investment adviser shall send an account statement, at least quarterly, to each client for whom the investment adviser has custody of funds or securities, identifying the amount of funds and of each security of which the investment adviser has custody at the end of the period and setting forth all transactions during that period; and

DFI-Sec 5.035(1)(d)2.b. b. The investment adviser shall engage an independent certified public accountant to verify all client funds and securities by actual examination at least once during each calendar year at a time chosen by the accountant without prior notice or announcement to the adviser and that is irregular from year to year. The accountant shall file a copy of the special examination report with the division within 30 days after the completion of the examination, stating that it has examined the funds and securities and describing the nature and extent of the examination; and

DFI-Sec 5.035(1)(d)2.c. c. Within one business day of the finding of any material discrepancies identified during the course of the examination under subd. 2. b., the accountant shall notify the division of the discrepancy by means of a facsimile transmission or electronic mail, followed by first class mail, directed to the division.

DFI-Sec 5.035(1)(d)3. 3. If the investment adviser is a general partner of a limited partnership, is a managing member of a limited liability company, or holds a comparable position for another type of pooled investment vehicle, the account statements required under par. (d) 1. or 2. a., shall be sent to each limited partner, member or other beneficial owner or their independent representative.

DFI-Sec 5.035(1)(e) (e) If a client does not receive account statements and notices directly from the adviser or custodian, the investment adviser shall obtain from the client a written designation of an independent representative to receive, on the client’s behalf, notices and account statements as required under pars. (c) and (d).

DFI-Sec 5.035(1)(f) (f) An adviser who has custody as defined in sub. (4) (a) as a result of having fees directly deducted from client accounts, as described in sub. (4) (a) 2., shall comply with all of the following:

DFI-Sec 5.035(1)(f)1. 1. The adviser shall obtain written authorization from the client to deduct advisory fees from the account held with the qualified custodian.

DFI-Sec 5.035(1)(f)2. 2. Except as provided in subd. 4., each time a fee is directly deducted from a client account, the adviser shall concurrently do both of the following:

DFI-Sec 5.035(1)(f)2.a. a. Send the qualified custodian notice of the amount of the fee to be deducted from the client’s account; and