SEC 2024 Examination Priorities

The SEC has identified fiduciary duty as a focus area. As a fiduciary, advisers have an obligation to act in the best interest of their clients and to disclose all conflicts of interest, which means during examinations, the SEC will assess whether advisers: 1) have satisfied their fiduciary obligation in providing investment advice to clients. To determine whether the adviser has satisfied this obligation, the SEC will look at whether advisers conduct suitability determinations, seek best execution, evaluate costs and risks associated with investments, and identify conflicts of interest. 2) 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.

The next focus area consists of an examination of advisers’ compliance programs. During examinations, the SEC will assess whether advisers’ policies and procedures reflect all relevant parts of its business. Whether the annual compliance reviews adequately address all conflicts of interests and a review of policies procedures with a particular focus on policies that include marketing practices, valuation assessments regarding recommendations to investments in illiquid assets, material non-public information, and third-party service providers just to name a few.

The last focus area is advisers to private funds such as hedge funds and private equity fund managers. During examinations, the SEC will assess advisers’ portfolio management risks. Whether advisers are accurately calculating and allocating fees and expenses and properly disclosing fees and expenses to investors and funds. Whether due diligence practices align with what is stated in the policies, procedures, and disclosure documents. Compliance with the custody rule, including accurate Form ADV filing, timely completion of private fund audits by a permissible auditor and distribution of audited financial statements to investors. And lastly, I'll mention review policies and procedures for reporting on Form PF.

As in the past, the SEC will continue to prioritize examinations of never before examined advisers, which include those who may have recently registered with the SEC. The SEC will also prioritize advisers who have not been examined in several years.

That concludes the SEC examination priorities for 2024. Thank you for watching, and join me in the next episode in the SEC Regulatory and Compliance Series.

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