Preparing for an SEC Examination: Practical Steps for Investment Advisers

A visit from the U.S. Securities and Exchange Commission (SEC) is typically a stressful event, albeit an important and unavoidable one.

While the process of an SEC examination can feel disruptive at the very least, proactive preparation can significantly reduce risk of further scrutiny, and help the team and business navigate the process confidently.

Understanding the reason for the visit, the current regulatory landscape, and preparing ahead of time can make a big difference in both the experience and the outcome.

What the SEC Is Looking for During an Examination

The SEC wants to see that a firm has implemented a well-designed compliance program that specifically meets the firm’s objectives and structure. In addition, the SEC will check that the compliance program is followed in practice and periodically reviewed and updated to address any changes to the business or gaps in regulatory requirements.

Examiners typically focus on several key areas:

• Policies and Procedures: Firms must maintain current compliance manuals that accurately reflect business practices and regulatory requirements.
• Books and Records: Client agreements, communications, trading documentation, and other required records must be maintained and easily accessible.
• Employee Knowledge and Training: Staff should understand the firm’s compliance obligations and their role in maintaining regulatory standards.
• Supervisory Oversight: The SEC often evaluates whether firms are actively monitoring potential conflicts of interest, trading practices, and operational risks.

Preparing Your Team for an SEC Visit

Preparation for an SEC visit should extend beyond documentation and involve the entire organization. Firms that take a proactive approach to examinations often experience a more efficient and manageable process. This begins with maintaining updated and easily accessible compliance policies and procedures that accurately reflect the firm’s current practices.

Regular compliance training for employees is just as important, as regulators may conduct staff interviews to evaluate how well personnel understand firm policies and regulatory expectations. When employees are familiar with procedures and able to clearly explain them, it reflects a strong culture of compliance.

Firms should also designate a central point of contact to coordinate communications and document requests from regulators during the examination. In addition, reviewing prior compliance issues and documenting any remediation efforts demonstrates that the firm actively addresses potential risks and strengthens its internal processes.

Periodically testing internal controls and supervisory procedures can further help identify gaps before regulators do. When a firm successfully demonstrates a cohesive and cultural framework of compliance, regulators are more likely to have confidence in the firm’s governance, oversight, and commitment to meeting their regulatory requirements.

Finally, consider including regular Mock Exams as part of your SEC examinations preparation as it is one of the most effective ways to prepare for an SEC visit. A mock exam simulates the regulatory process and allows firms to identify compliance gaps before regulators do. Mock examinations also reinforce accountability and strengthen a firm’s overall compliance culture.

Learn more about our Mock Exam Service.

Current Regulatory Priorities

Regulatory expectations evolve as the industry changes. The SEC’s recent examination priorities indicate continued focus on areas that directly impact investor protection and operational integrity. If you receive a notice from the SEC, here are the key areas to review:

• Fiduciary obligations and conflicts of interest

• Fee and expense disclosures and whether clients receive accurate information
• Cybersecurity practices and data protection measures including incident response
• Operational resiliency
• Emerging technologies, including the use of artificial intelligence and automated investment tools

An SEC examination should be viewed as an opportunity to evaluate and strengthen your firm’s compliance infrastructure. Firms that invest time in preparation are often better positioned to address regulatory inquiries and demonstrate a commitment to investor protection.

With a proactive approach, investment advisers can meet SEC examinations with clarity, confidence, and a stronger culture of compliance.

For assistance preparing for an SEC visit, please contact us at 619.298.2880 or email [email protected].