On September 6, 2023, the SEC’s Division of Examinations published the risk alert “Investment Advisers: Assessing Risks, Scoping Examinations, and Requesting Documents.” It explains how staff choose advisers to examine and set the scope of an exam, and it attaches the staff’s “Typical Initial Information Examiners Request of Investment Advisers.” That attachment describes a typical exam of an adviser without additional activities or relationships, and the example it gives is managing private funds. A first-time private fund adviser should read the list as a starting point, not a complete one.
What “Assessing Risks, Scoping Examinations, and Requesting Documents” (September 6, 2023) is, and is not
The alert represents the views of Division staff, not a rule or a statement of the Commission. In its own words it “has no legal force or effect” and creates no new or additional obligations for anyone. Its attachment replaces a similar document published in 2008, which the SEC has removed from its website.
For scale, the alert said more than 15,000 advisers managing in excess of $115 trillion were registered with the SEC. It also said staff had examined approximately 15% of advisers in each of the prior three years. Those are 2023 figures.
How the SEC selects an adviser: the alert’s 11 risk factors
The alert says the Division may select an adviser because of its risk characteristics, a tip, complaint or referral, or the staff’s interest in a particular compliance risk area. It then lists 11 risk factors specific to the firm that staff may consider.
- Prior examination observations.
- Supervisory concerns.
- Tips, complaints or referrals.
- Business activities that may create conflicts of interest.
- The time since the firm registered or was last examined.
- Material changes in leadership or other personnel.
- Signs the adviser may be vulnerable to financial or market stress.
- News and media reports.
- Third-party data services.
- The firm’s disclosure history.
- Access to client and investor assets, or gatekeeper and service provider risks.
Factor 5 is the one every first-time adviser meets. The alert’s example for it is “advisers newly registered with the SEC.” A footnote points to the Division’s risk alert of March 27, 2023 on newly registered advisers.
How the scope of the exam is set
Scope, and so the documents requested, varies with the firm’s business model, its risks and the reason for the exam. Requests for background documents such as organizational charts are made in most examinations. Exams typically cover core areas including custody and safekeeping of client assets, valuation, portfolio management, fees and expenses, and brokerage and best execution.
The initial request letter has four parts
Staff usually send a letter announcing the exam, with an initial request list. The list typically covers four things: general information about the business, the compliance risks the firm has identified and the policies it adopted for each, information to test advisory trading, and information staff use for their own compliance testing. When an exam is unannounced, staff may hand over the request on arrival.
The attachment’s 14 request groups, as a checklist
The SEC’s caveat comes first: the attachment covers “a typical examination of an adviser that does not engage in additional activities and/or have additional relationships (e.g., manage private funds).” Requests usually arrive by secure email, and responses are typically electronic. The group names below are the SEC’s; the items are paraphrased.
General information
- Organizational information, and business and operations: structure, affiliates and control persons; offices and branches; joint ventures; current and former personnel; committees and minutes; advisory agreements; third-party arrangements for client accounts; fees; powers of attorney; service providers.
- Disclosures and filings: regulatory filings and disclosure documents, such as Form ADV with the brochure, and Form CRS.
- Legal and disciplinary: threatened, pending and settled litigation or proceedings, and remedial actions against supervised persons.
Compliance program, risk management and internal controls
- Compliance program and oversight: policies in effect during the exam period; compliance tests; consultant reports; annual and interim reviews; compliance exceptions; remote office oversight; complaints and communications monitoring; the inventory of risks and conflicts behind the policies; training.
- Valuation: the process; pricing services and outside accounting systems; fair-valued and illiquid holdings; fee calculations; pricing overrides.
- Information processing, reporting and protection: safeguards for customer records; electronic access controls; the business continuity plan; cybersecurity incidents and how they were handled.
Testing of advisory trading
- Clients and accounts: current account data such as type, balance, discretion, custody, strategy, portfolio manager and fee method; clients lost during the review period.
- Portfolio management: holdings across client portfolios; private investments and initial public offerings; companies where employees serve as officers or directors or on creditors’ committees; outside compensation; client profiles.
- Brokerage and trading: the trade blotter; best execution reviews; soft dollars; commission sharing; affiliated broker-dealers; principal and cross trades; wrap fee programs; trade errors; offering allocations.
- Conflicts of interest and insider trading: the code of ethics and insider trading policies; attestations; exemptions; access persons’ transaction reports; fee splitting or revenue sharing.
Compliance testing in various areas
- Marketing and advertising: all advertising and marketing materials, including websites and social media; meeting materials; client and composite performance; requests for proposal and due diligence questionnaires; testimonials and endorsements, with payments; third-party ratings.
- Financial records: balance sheet, trial balance, income and cash flow statements; the cash journal; the general ledger; loans and sales of firm or affiliate stock.
- Custody: custodians and contacts; surprise examination documents; auditor engagement letters, opinions and findings; custodian confirmations of positions.
Why a private fund adviser should treat the list as a floor
The annual priorities show where staff look beyond the list. For fiscal year 2026 the Division named “advisers to newly launched private funds” and advisers that had not previously advised private funds, with reviews of “regulatory awareness, liquidity, valuation, fees, disclosures, and differential treatment of investors, including use of side letters.” For fiscal year 2027, private fund reviews look at whether controls address “both fund-level and investment-level risks,” with examples including fund-level lines of credit, affiliated service providers and the accuracy of fee and expense calculations. Our fiscal year 2027 priorities piece covers that private fund layer; this one covers the baseline list.
The request list is the SEC’s floor for a typical adviser, not the ceiling for a private fund adviser.
What has changed since 2023: the 2026 Exam Handbook
The 2023 alert pointed readers to the Division’s examination brochure. On October 1, 2026, the SEC published “The SEC Exam Handbook: A Practical Guide on Process and Engagement,” which it said “replaces and expands upon the previous examination brochure.” The handbook speaks to several points the 2023 alert did not.
- Selection: “Being selected for an examination is not, in itself, a signal that something is wrong.”
- Filings: “Keeping your filings current and accurate makes examinations more efficient and can reduce the number of findings on your exam.”
- The first contact: “Most examinations begin with a brief call from staff to the chief compliance officer (CCO) or other regulatory contact to announce the exam.”
- Timing: “The Commission expects that in most circumstances records should be available to staff within 24 hours. In practice, the staff usually provides two weeks to produce records in response to the initial information request.” Staff “will grant requests for reasonable extensions of time or rolling productions, where appropriate.”
- Interviews: “The staff does not consent to the use of recording, transcription, super intelligence notetaking tools, or other similar technologies.”
- Outcomes: the handbook says of the deficiency letter, “Most examinations conclude with such a letter.” Staff typically ask for a response within 30 days of the date of the deficiency letter. Our piece on the handbook’s clock and checklist covers the full timeline.
What has changed since 2023: never-examined advisers stay a priority
For fiscal year 2026, the Division said it “will prioritize examinations of advisers that have never been examined, with particular emphasis on recently registered advisers.” The fiscal year 2027 priorities repeat that priority and say these exams evaluate “the adviser’s compliance with regulatory requirements and its processes for identifying, addressing, and disclosing risks and conflicts of interest.” They also say examinations “will also typically analyze an adviser’s annual compliance review.” The 2023 attachment already asks for annual and interim reviews of policies and procedures.
What firms should do
Use the attachment as an inventory before a letter arrives. For each request group, note where the records sit, who owns them and whether they can be sent electronically, since the attachment expects electronic responses and the handbook sets a 24-hour expectation in most circumstances. Then add the private fund topics from the priorities.
Preparation does not decide how an exam ends; most exams end with a deficiency letter. Taft’s ExamReady is one way to work through these questions before an exam; it does not change what the SEC asks for or finds.
Sources
- Risk Alert: Investment Advisers: Assessing Risks, Scoping Examinations, and Requesting Documents, U.S. Securities and Exchange Commission
- Fiscal Year 2026 Examination Priorities, U.S. Securities and Exchange Commission
- Fiscal Year 2027 Examination Priorities, U.S. Securities and Exchange Commission
- SEC's Division of Examinations Announces New Exam Handbook (press release 2026-99), U.S. Securities and Exchange Commission
- The SEC Exam Handbook, U.S. Securities and Exchange Commission
Taft does not provide legal advice. Content is for informational purposes only and subject to regulatory guidance.