The SEC and E-Signatures

Rule 204-2 under the Investment Advisers Act of 1940 permits RIAs to keep all of their records in an electronic format as long as they “establish and maintain procedures: (i) to safeguard the records from loss, alteration or destruction; (ii) to limit access to the records to authorized personnel [and] the [SEC] … ; and (iii) to ensure that electronic copies of non-electronic originals are complete, true and legible.”

It is important to note that ESIGN actually places limits on the SEC’s authority to implement rules concerning electronic signatures. Because of this, the SEC revised Rule 204-2 to be “technologically neutral” and permits advisors to implement any combination of technological and manual protocols that meet the requirements of the three prongs above. Therefore, it is important to implement a written policy or procedure to be compatible with your electronic signature in the event you adopt a platform for gathering clients’ signatures through electronic means.

Lastly, it is important to conduct due diligence on the electronic signature program or platform prior to its implementation. The firm must be confident that the program or platform has an appropriate level of security and also has the ability to link the signed document with the signer.

As someone from the old school, when it comes to execution of critical documents (e.g., investment advisory agreements, an IPS or similar documents), I prefer a hard (originally executed) copy. That being said, old-timers like me need to be forward thinking and let our clients decide, given the technology that is now available.

Consider the above to determine if electronic signatures make sense for your firm. We have developed policies for several firms that have determined to use electronic signatures, but are electronic signatures right for your firm? You decide.