What is required from a registered investment adviser if it has discretionary authority over client funds?

When a registered investment adviser has discretionary authority over client funds, it is essential to file a balance sheet as it reflects the adviser's financial condition and provides transparency regarding its operations. This requirement is in place to ensure that the adviser is financially stable and capable of managing client assets effectively. Moreover, maintaining a balance sheet helps protect the clients' interests by ensuring that the adviser adheres to regulatory standards and is compliant with financial health indicators.

While other options like conducting audits, client surveys, or annual performance reviews may be best practices for transparency and client communication, they do not specifically address the regulatory requirement directly associated with having discretionary authority over client funds. Filing a balance sheet is a clear and direct requirement that supports the overall trust and regulatory compliance between investment advisers and their clients.