Navigating The 2025 Regulatory Landscape: A Deep Dive Into SEC Examination Priorities For Investment Advisers

The Securities and Exchange Commission (SEC) has outlined its examination priorities for fiscal year 2025. Its heightened scrutiny necessitates a proactive approach to compliance. Our experts delve into the key areas of focus for the SEC and provide actionable advice to help registered investment advisers (RIAs) stay compliant.

Investment Advisers: Key Areas Of SEC Focus In 2025

1. Fiduciary Duty & Best Interest
The SEC will scrutinize investment advice, particularly regarding high-cost products, unconventional instruments, illiquid assets, and those sensitive to interest rate fluctuations. Dual registrants will face increased scrutiny, including over their ability to balance advisory and brokerage roles and mitigate conflicts of interest. Additionally, the SEC will assess how advisers manage conflicts arising from fees, revenue sharing, and other arrangements.

2. Compliance Program Effectiveness
The SEC will review RIAs' compliance programs, focusing on core areas, such as marketing, valuation, trading, portfolio management, disclosure, and custody. The SEC will also examine how RIAs manage risks associated with outsourcing and alternative revenue sources.

The SEC will continue to focus on private fund advisers, particularly in areas like:

• Disclosures & Fiduciary Duty: The SEC will review disclosures, especially in times of market volatility, and assess whether advisers met their fiduciary obligations.
• Fee & Expense Calculations: The SEC will examine the accuracy of fee calculations and allocations, including those for illiquid assets and post-commitment periods.
• Conflicts Of Interest & Risk Management: The SEC will assess disclosures of conflicts, policies for managing conflicts, and risk-management practices, especially for complex transactions and leverage.
• Compliance With New Rules: The SEC will review compliance with recent rules, including those regarding Form PF and marketing.

Practical Tips For RIAs To Stay Compliant

To navigate these heightened regulatory expectations, RIAs should:

• Strengthen Compliance Programs: Develop comprehensive compliance policies and procedures, conduct regular reviews, and provide ongoing training to staff.
• Enhance Risk Management: Identify and mitigate risks associated with complex products, illiquid assets, and emerging technologies.
• Prioritize Documentation: Maintain detailed records of investment decisions, client communications, and compliance reviews.
• Review Disclosures: Ensure that disclosures are accurate, clear, and consistent with actual practices.
• Stay Informed: Keep abreast of regulatory developments and industry best practices.
• Conduct Regular Compliance Reviews: Conduct periodic reviews of compliance policies and procedures to identify and address potential issues.

Emerging Trends & Future Outlook

• Digital Assets & Cryptocurrencies: The SEC is actively monitoring the rapid growth of digital assets and cryptocurrencies. RIAs involved in this space should be prepared to address questions about their due diligence, risk management, and client suitability practices.
• Cybersecurity: With the increasing prevalence of cyber threats, the SEC is prioritizing cybersecurity as a critical compliance issue. RIAs must implement robust cybersecurity measures to protect client data and prevent unauthorized access.
• ESG Investing: The SEC is focused on ensuring that ESG claims are accurate and not misleading. RIAs offering ESG-focused investment strategies should have clear policies and procedures in place to support their claims.
• Artificial Intelligence (AI) & Machine Learning: The SEC is exploring the potential benefits and risks of AI and machine learning in the investment advisory industry. RIAs using these technologies should be prepared to explain how they are being used and how they impact investment decisions.

By staying informed about regulatory developments, implementing robust compliance programs, and leveraging technology, RIAs can navigate the complex regulatory landscape and protect clients' interests.

AdvisorLaw: Your Partner In Compliance

AdvisorLaw offers comprehensive compliance solutions to help RIAs navigate the complex regulatory landscape. Our experienced team of compliance professionals can assist with:

• Compliance Program Development & Implementation: We can help you develop and implement a robust compliance program that meets SEC standards.
• Policy & Procedure Development: We can draft and update your firm's policies and procedures to maintain compliance with SEC regulations.
• Regulatory Compliance Monitoring: We can monitor regulatory changes and provide guidance for how to adapt your compliance program accordingly.
• Outsourced CCO Services: Our experienced CCOs can provide oversight and guidance to help you achieve and maintain compliance.

As the regulatory landscape for investment advisers continues to evolve, it's crucial to have a reliable partner to help you navigate the complexities. AdvisorLaw offers comprehensive compliance solutions tailored to your firm's specific needs.

Contact us today to learn more about how we can help you achieve regulatory excellence.