2027 SEC Examination Priorities for Investment Advisers

The fiscal year 2027 examination priorities, released on October 23, are an annual publication highlighting practices, products, and services that the Division believes present heightened risks to investors or to the integrity of the US capital markets. Though not exhaustive, the examination priorities provide insight into the Division’s processes and its perspective on the most pressing risks. Although the Division’s priorities span multiple registrant types, this alert focuses on the priorities most relevant to SEC-registered investment advisers.

Consistent with previous years, the Division will continue to prioritize examinations of advisers that have never been examined, with particular emphasis on recently registered advisers. These examinations evaluate, among other things, the adviser’s compliance with regulatory requirements and its processes for identifying, addressing, and disclosing risks and conflicts of interest. Below, we break down the priorities most likely to affect investment advisers. For a look back at last year’s priorities, see our analysis of the 2026 SEC Examination Priorities for Investment Advisers.

Adherence to Fiduciary Standards of Conduct

Examinations will review whether advisers have provided full and fair disclosures of all material facts relating to their advisory relationships, conducted reasonable due diligence into products or services recommended to clients, adopted and evaluated the effectiveness of compliance policies and procedures, and assessed the reasonableness of their valuation processes and methodologies.

Economic conflicts of interest. The Division will prioritize reviewing advisers’ fiduciary obligations relating to economic conflicts of interest. These reviews will assess whether advisers’ financial conflicts may affect the impartiality of their advice in certain areas, such as fee rebates, fee and expense calculations, cash management, quid pro quo arrangements, deposits, and withdrawals. Advisers should review the Division’s June 9, 2026, Risk Alert on economic conflicts of interest, which the priorities cite and which describes conflicts the staff observed that were undisclosed or inadequately disclosed.

Formulation of investment advice. Examiners will look at the factors advisers weigh when formulating investment advice and whether the investment products or strategies recommended align with each client’s profile, investment objectives, risk tolerance, and other mandates. Relevant factors include liquidity, risk profile and potential rewards, volatility, projected performance across diverse market and economic conditions, time horizons, and costs (including exit costs). The Division will also pay particular attention to unique product features that could affect whether a recommendation is suitable or how it performs.

Illiquid and alternative products. The Division will prioritize advisers that recommend products that are difficult to trade, have unusual features, or are illiquid. These products include alternative investment products such as loans provided by private funds and investments in private companies through special purpose vehicles, as well as other complex and higher-risk investments.

Private fund advisers. When examining advisers to private funds, reviews will assess investment-related disclosures of risks for consistency with fiduciary standards, and whether compliance policies, procedures, and controls are designed to address both fund-level and investment-level risks. Examples include disclosures related to:

• Certain investments and allocations.
• Use of debt and fund-level lines of credit.
• Use of affiliated service providers.
• The accuracy of fee and expense calculations at both the fund and investment levels.

Third-party service providers. The Division will also focus on advisers that use certain third-party service providers. This includes advisers using third parties to access clients’ accounts, where existing controls may be insufficient to protect client assets and data. It also includes advisers that rely on proxy advisory firms, with the Division assessing how those advisers evaluate such recommendations, examine their bases, identify potential conflicts of interest, and determine whether that reliance satisfies applicable legal obligations.

Effectiveness of Advisers’ Compliance Programs

The Division will review key components of an adviser’s compliance program that address areas such as marketing, valuation, trading, portfolio management, disclosure and filings, and custody, as appropriate for each specific examination. Examinations will also typically analyze an adviser’s annual compliance review. This priority follows the Division’s September 14, 2026, Risk Alert sharing staff observations regarding investment advisers’ annual compliance reviews.

The Division continues to prioritize whether policies and procedures are reasonably designed to address conflicts of interest, in light of a firm’s particular operations, and to prevent advisers from placing their interests ahead of clients’ interests. Examinations will focus on whether the policies and procedures are implemented, and whether disclosures address fee-related conflicts of interest, particularly those arising from account and product compensation structures.

Changes in the business. The Division will focus on compliance practices when advisers have changed their business models or have started advising different types of clients, providing advice regarding new asset classes, or providing new services. The Division will also prioritize advisers that have grown through mergers, acquisitions or other means, or are operating from multiple geographically dispersed branch offices, and will assess whether the adviser has adapted its compliance program and addressed new conflicts of interest.

Information Security and Operational Resiliency

Cybersecurity remains a key examination priority. Examinations will review firms’ policies and procedures regarding governance practices, data loss prevention, access controls, account management, and the response and recovery protocols for cyber-related incidents, including ransomware attacks. The Division will also assess risks associated with registrants’ increased use of third-party service providers and shared technologies, including the effectiveness of risk management in these areas.

Regulation S-P. With the compliance dates for the Regulation S-P amendments now passed, examinations will focus on whether firms have developed, implemented, and maintained reasonably designed policies and procedures that address administrative, technical, and physical safeguards to protect customer information. Staff will evaluate response program policies and procedures for unauthorized access to or use of customer information, including customer notification procedures and oversight of service providers.

Regulation S-ID. For advisers subject to Regulation S-ID, the Division will review policies and procedures with a focus on firms’ identification and detection of and response to red flags, particularly during customer account takeovers and fraudulent transfers, and will assess whether firms are updating their Identity Theft Prevention Program to address emerging risks, such as those related to super intelligence (SI) and stolen credentials. (“Super intelligence” is the term the Division uses this year for what is more commonly referred to as artificial intelligence, or AI.)

Emerging Financial Technology

In its introduction to the priorities, the Division notes that as SI capabilities grow more sophisticated and embedded in daily business processes, it is intensifying its efforts to understand how the technologies influence outcomes and whether firms continue to comply with existing, technology-neutral obligations.

The Division notes that registrants are increasingly using SI in core business operations, including investment analysis, and that threat actors are using SI to automate and accelerate cyberattacks. The Division will focus on registrants’ assessment and preparation for potential threats from SI-related cyberattacks, such as SI-generated phishing messaging and synthetic or deepfake voice and video used for social engineering. It will also prioritize examinations of policies and procedures relating to monitoring SI, including its use in fraud prevention and detection, back-office operations, and trading functions.

For firms using automated investment tools, trading algorithms, or alternative data sources, assessments generally will include whether (1) representations are fair and accurate, (2) operations and controls are consistent with disclosures made to investors, and (3) algorithms lead to advice or recommendations consistent with investors’ investment profiles or stated strategies.

Takeaways

Considering these priorities can help set investment advisers up for success in the event of an examination. In particular, advisers may wish to revisit fee and expense allocation and calculation testing, disclosures concerning conflicts of interest and affiliated service providers, Regulation S-P incident response and service provider oversight, and controls over the use of SI. The Division also recently published “The SEC Exam Handbook: A Practical Guide on Process and Engagement,” which provides more detail about what to expect during an examination.

If you have questions about the 2027 examination priorities and how they might affect your investment advisory business, contact Jon Jurva, Vanessa Meeks, or another member of the ArentFox Schiff Corporate & Securities group.