The SEC has released their 2024 exam priorities. As with previous years, the Division continues to prioritize examinations of advisers that have never been examined, including recently registered advisers, and those that have not been examined for a number of years.
In reviewing advisers’ adherence to their duty of care and duty of loyalty obligations, the Division continues to focus on:
Investment advice provided to clients with regard to products, investment strategies, and account types. Examination focus may be emphasized for investment advice provided to older investors and those saving for retirement.
Processes for determining that investment advice is provided in clients’ best interest. Such assessments will review the factors advisers consider in light of the clients’ investment profiles, including investment goals and account characteristics.
Economic incentives that an adviser and its financial professionals may have to recommend products, services, or account types.
Disclosures made to investors and whether they include all material facts relating to conflicts of interest associated with the investment advice sufficient to allow a client to provide informed consent to the conflict.
The examination focus on compliance policies and procedures may include one or more of the following areas:
portfolio management processes;
disclosures made to investors and regulators;
proprietary trading by the adviser and the personal trading activities of supervised advisory personnel;
safeguarding of client assets from conversion or inappropriate use by advisory personnel;
the accurate creation of required records and their maintenance in a manner that secures them from unauthorized alteration or use and protects them from untimely destruction;
safeguards for the privacy protection of client records and information;
trading practices;
marketing advisory services;
processes to value client holdings and assess fees based on those valuations;
business continuity plans;
selecting and using third-party and affiliated service providers; and
overseeing branch offices when advisers operate from numerous or geographically dispersed offices.
Particular examination focus will include:
Marketing practice assessments
Adopted and implemented reasonably designed written policies and procedures to prevent violations of the Advisers Act and the rules thereunder including reforms to the Marketing Rule.
Appropriately disclosed their marketing-related information on Form ADV.
Maintained substantiation of their processes and other required books and records.
Complied with the requirements for third-party ratings, testimonials, and endorsements.
Compensation arrangement assessments
Fiduciary obligations of advisers to their clients particularly with respect to the advisers’ receipt of compensation for services or other material payments made by clients and others.
Alternative ways that advisers try to maximize revenue, such as revenue earned on clients’ bank deposit sweep programs.
Fee breakpoint calculation processes, particularly when fee billing systems are not automated.
Valuation assessments
Recommendations to clients to invest in illiquid or difficult to value assets, such as commercial real estate or private placements.
Safeguarding assessments
Controls to protect clients’ material non-public information.
Disclosure assessments
Review the accuracy and completeness of regulatory filings, including Form CRS, with a particular focus on inadequate or misleading disclosures and registration eligibility.
Cybersecurity (Part of this review will consider whether registrants adequately train staff regarding their identity theft prevention program.)
policies and procedures,
internal controls,
oversight of third-party vendors (where applicable),
governance practices, and
responses to cyber-related incidents, including those related to ransomware attacks.
Proliferation of certain types of investments, including crypto assets and their associated products and services.