On March 27, 2023, the SEC’s Division of Examinations published the risk alert “Observations from Examinations of Newly-Registered Advisers.” It discusses the typical focus areas of these exams and shares staff observations on compliance policies and procedures, disclosures and marketing. An attachment lists SEC resources with reference links.
What “Observations from Examinations of Newly-Registered Advisers” (March 27, 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. It remains a useful map, because the priorities for fiscal years 2026 and 2027 both keep never-examined and recently registered advisers in focus.
The alert says newly registered advisers “may face unique compliance risks and issues.” The Division has noted its interest in examining them in each of its published examination priorities since 2013. A footnote adds that the number of SEC-registered advisers grew by more than 20% in the five years before the alert.
The 3 things these exams often focus on
The Division describes these exams as “an opportunity for early engagement between advisers and the staff.” They often focus on whether a firm has identified and addressed conflicts of interest and given clients full and fair disclosure so they can give informed consent. The third focus is whether the firm has adopted an effective compliance program.
What examiners ask for: 5 groups of information
These exams typically involve document requests and interviews covering the adviser’s business and investment activities, organizational affiliations, compliance policies and procedures, and disclosures to clients. Staff ask for a defined review period and check whether what the firm tells clients and the SEC matches its actual practices. The alert then lists what staff typically request and review.
- General business information: organizational charts, support for eligibility for SEC registration, ownership and control of the adviser and its affiliates, current and former personnel (including why former staff left, if available), the balance sheet, trial balance and income statement, and any litigation or arbitration.
- Data on each client account: services provided; account types, which include private funds; trading authority; who services the account; assets under management; service providers such as custodians, administrators and auditors; and investment strategies. Staff often also ask for supporting contracts and third-party account statements.
- The compliance program: written policies and procedures, the code of ethics, risk management practices and internal controls.
- Testing data: for example, records of all clients’ securities holdings and transactions.
- Client communications: disclosure documents and advertising, including pamphlets, social media, mass mailings, websites and blogs.
Interviews help staff assess the firm’s “tone at the top and culture of compliance,” which the alert says can be important to its review of the program’s effectiveness.
What staff found in 3 areas
Staff identified issues in three areas, among others: compliance policies and procedures, disclosure documents and filings, and marketing.
Compliance policies and procedures. Staff saw policies and procedures that did not adequately address risk areas that applied to the firm, such as portfolio management and fee billing. Some stated a policy with no procedure to enforce it; the alert’s example is a best execution policy with no procedure to evaluate execution quality periodically and systematically. Others were not followed, typically because personnel were not aware of them or they did not fit the business.
Staff also saw annual compliance reviews that did not address the adequacy of the policies and the effectiveness of their implementation, and the alert gives five examples.
- Off-the-shelf compliance manuals not tailored to the firm’s operations.
- Possibly too few resources for compliance, such as a chief compliance officer given extra, unrelated duties and little time for compliance.
- Undisclosed, unmitigated conflicts from personnel holding several roles.
- Outsourced business or compliance functions with no assessment of how they were performed.
- Inadequate business continuity plans, including succession plans.
Disclosure documents and filings. Staff saw omissions, inaccurate information and untimely filings, including material or annual updates not made on time or at all. The gaps related to fees and compensation, business or operations such as affiliates, number of clients and assets under management, and services such as investment strategy, aggregate trading and account reviews. They also related to disciplinary information, websites and social media accounts, and conflicts of interest.
Marketing. Staff saw marketing materials that appeared to contain false or misleading information, including about personnel experience or credentials, third-party rankings and performance. Some advisers could not substantiate certain factual claims. The exams predated the current marketing rule, but the alert says the observations are still relevant to compliance with it.
A new adviser’s first exam tests whether the program on paper is the program in practice.
What has changed since 2023: a handbook with a 24-hour records expectation
The alert’s resources attachment points to the Division’s examination brochure. On October 1, 2026, the SEC said its new handbook “replaces and expands upon the previous examination brochure.” The handbook says:
- Its risk assessment factors include “the length of time since registration or the last examination.”
- “Being selected for an examination is not, in itself, a signal that something is wrong.”
- “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.”
- “Preparing knowledgeable personnel to participate in the meetings will make the meetings more productive (and could reduce the number of meetings).”
- A disposition letter comes within 180 days of the end of any on-site portion or the receipt of all requested records, whichever is later. Of the deficiency letter, it says: “Most examinations conclude with such a letter.”
Our piece on the handbook’s clock and checklist covers these deadlines in more detail.
What has changed since 2023: the priorities still name new advisers
The fiscal year 2026 priorities were released on November 17, 2025, and the fiscal year 2027 priorities on October 23, 2026. The fiscal year 2026 document says: “As with previous years, the Division will prioritize examinations of advisers that have never been examined, with particular emphasis on recently registered advisers.” The fiscal year 2027 document repeats that priority and says these exams evaluate “the adviser’s compliance with regulatory requirements and its processes for identifying, addressing, and disclosing risks and conflicts of interest.” It also says examinations “will also typically analyze an adviser’s annual compliance review.” Our fiscal year 2027 priorities piece walks through the private fund items.
What has changed since 2023: first annual reviews at 18 months
On September 14, 2026, the Division published the risk alert “Examinations Observations Regarding Investment Adviser Annual Compliance Reviews.” It describes advisers that ran annual reviews over periods longer than 12 months, including first reviews at 18 months after SEC registration. It also describes advisers that treated compliance training or annual attestations as a substitute for the review.
What has changed since 2023: the private fund adviser rules were vacated
The SEC adopted the private fund adviser rules on August 23, 2023, and the Fifth Circuit vacated them on June 5, 2024. The SEC’s announcement says the vacated amendments to Rules 204-2 and 206(4)-7 “are no longer in effect.” Release IA-6773 revised Rule 206(4)-7(b) to read: “Review, no less frequently than annually, the adequacy of the policies and procedures established pursuant to this section and the effectiveness of their implementation.” That is the same test the 2023 alert found missing in some annual reviews.
What firms should do
Each question below comes from the alert.
- Have we identified our conflicts of interest, including those created by people holding several roles, and disclosed or mitigated each one?
- Can we produce, for a defined period, the business information, client account data, compliance documents, trading records and client communications the alert lists?
- Does our manual cover the risks that actually apply to us, such as portfolio management and fee billing, or is it an untailored template?
- For every stated policy, is there a procedure that carries it out, and do our people know it?
- Did our last annual review assess both adequacy and effectiveness, and was it done on time?
- Does our chief compliance officer have the time and resources the role needs, and have we assessed anything we outsource?
- Are Form ADV and our other disclosures accurate and filed on time, and can we substantiate every factual claim in our marketing?
Taft’s ExamReady review is one way to work through these questions before an exam. Firms that need a named compliance officer without a full-time hire can read what a fractional CCO is or see the Fractional Compliance Team. Neither changes what the SEC asks for or finds.
Sources
- Risk Alert: Observations from Examinations of Newly-Registered Advisers, 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
- Examination Priorities (Division of Examinations), 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
- Risk Alert: Examinations Observations Regarding Investment Adviser Annual Compliance Reviews, U.S. Securities and Exchange Commission
- Release IA-6773: Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews (technical amendments), U.S. Securities and Exchange Commission
- Announcement Regarding the Private Fund Advisers Rules, U.S. Securities and Exchange Commission
Taft does not provide legal advice. Content is for informational purposes only and subject to regulatory guidance.