SEC Examination Priorities for 2025

The SEC's 2025 exam priorities for investment advisors include fiduciary duty. As a fiduciary, advisors owe a duty of care and a duty of loyalty to their clients, which means that at all times, advisors must act in the best interest of their clients and make full and fair disclosures of all conflicts of interest. To determine rather an advisor has satisfied its fiduciary duty, the SEC will look at whether disclosures to investors contain all material facts related to conflicts of interest, and whether those facts were sufficient for investors to provide informed consent to the conflict and whether the investment advice offered to investors was made in the best interest of the investor. Factors the SEC will consider in making this determination includes whether the advisor conducted suitability reviews and whether the investment advice offered to investors aligned with the suitability determination, whether advisors sought best execution and whether advisors properly evaluated and communicated all relevant costs and risk of investment to investors.

Advisors' compliance programs. Rule 20647 of the Investment Advisors Act of 1940 requires registered investment advisors to adopt and implement written policies and procedures, designate a chief compliance officer, and review the policies and procedures at least annually for their adequacy and effectiveness. During examinations, the SEC will assess the adequacy and effectiveness of advisor's compliance program. To determine rather an advisor has adequately and effectively implemented a compliance program, the SEC will look at whether the advisor's policies and procedures reflect all relevant parts of the advisor's business. Policies and procedures of focus will include alternative sources of revenue or benefits, fee calculations, and disclosure of fee-related conflicts. The SEC will look at an analysis of the advisor's annual compliance review to determine whether it adequately addresses all conflicts of interest. Lastly, the SEC will review advisors' policies and procedures with a particular focus on policies such as marketing practices, valuation assessments, trading, portfolio management, disclosures and filings, and custody. 

Advisors to private funds. Private fund advisors are investment advisors who manage private funds, such as venture capital funds, hedge funds, and private equity funds. During examinations, the SEC will assess whether private fund advisor disclosures are consistent with their actual practices, whether advisors are accurately calculating and allocating fees and expenses and properly disclosing at the fund level and at the investment level, whether advisors adequately disclose conflicts of interests and risk, review the adequacy of policies and procedures and the advisor's compliance with recently adopted SEC rules, such as Form PF. Other areas the SEC will focus on include cybersecurity, regulation SID and regulation SP, shortening of the settlement cycle, crypto assets, regulation systems compliance, and integrity and AML. That concludes SEC examination priorities for 2025. Thank you for watching and join me in the next episode in the SEC Regulatory and Compliance Series. SEC20251 (Completed 12/02/24)

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