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compliance
The SEC's Division of Examinations is ramping up its scrutiny of investment advisers, emphasizing their fiduciary obligations to clients. This focus underscores the importance of adhering to the duties of care and loyalty, particularly in the context of investment advice regarding various products and strategies. Key areas of concern include:
1. High-Cost and Unconventional Products
Advisers must demonstrate that their recommendations, especially for high-cost products and unconventional instruments, align with clients’ best interests. This includes evaluating illiquid and difficult-to-value assets and those sensitive to fluctuating interest rates and market conditions, such as commercial real estate.
2. Dual Registrants and Affiliated Broker-Dealers
The SEC will closely examine the practices of dual registrants — those serving both as investment advisers and broker-dealers. Particular attention will be given to the appropriateness of account selection, the clarity of disclosures regarding the nature of advice provided, and the strategies in place to mitigate and disclose conflicts of interest.
3. Impartial Advice and Conflicts of Interest
An assessment will be made regarding how conflicts of interest affect advisers' ability to deliver unbiased advice and ensure best execution for their clients. This includes scrutinizing non-standard fee arrangements that may influence the recommendations provided.
4. Compliance Programs
The effectiveness of advisers’ compliance programs will be a significant focus area. Examinations will ensure that compliance measures, as outlined in Rule 206(4)-7 of the Investment Advisers Act of 1940, are appropriately designed to prevent advisers from placing their interests above those of their clients. Key compliance areas include marketing practices, portfolio management, and the accuracy of disclosures and filings.
5. Private Fund Advisers
Recognizing the substantial role private fund advisers play within the SEC-registered population, the Division will prioritize issues such as the consistency of disclosures with actual practices, especially for funds exposed to market volatility. This includes a review of fee calculations and allocations, conflict disclosures, and adherence to new SEC rules, including those related to Form PF and updated marketing regulations.
By focusing on these critical areas, the SEC aims to enhance investor protection and ensure that investment advisers uphold their fiduciary duties, ultimately fostering a more transparent and equitable investment landscape.
Please visit the SEC press release and the full report for 2025 SEC Exam Priorities.
By proactively addressing any areas for improvement, while guiding investment advisers through the process of an SEC exam, Coast to Coast Compliance can help give your firm and staff the confidence and preparedness to succeed in an SEC examination. Coast to Coast Compliance can conduct a mock SEC examination which includes the requesting and reviewing of key compliance and business documents, as well as the interviewing of various firm personnel. We will also provide a final exam interview, or written report if requested, covering the scope of the mock SEC examination, relevant findings, and any resulting recommendations.
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