As the regulatory landscape evolves, the SEC’s Division of Examinations has released its 2025 Examination Priorities, highlighting key areas of focus for Registered Investment Advisers (RIAs). These priorities underscore the SEC’s continued efforts to ensure investor protection, maintain market integrity, and foster a culture of compliance. Here’s a breakdown of what RIA firms can expect:
1. Upholding Fiduciary Standards of Conduct
The cornerstone of a RIA’s obligations lies in its fiduciary duty to clients—ensuring that the client’s best interests come first. For 2025, the SEC will intensify its scrutiny of how advisers meet their fiduciary responsibilities, especially when recommending:
- High-cost products and unconventional instruments, which may present complex risk profiles.
- Illiquid or difficult-to-value assets, such as real estate and certain private credit products.
- Assets impacted by changing market conditions, like those sensitive to rising interest rates.
The Division is particularly interested in dual registrants and advisers working with broker-dealers, examining whether conflicts of interest are being transparently disclosed and properly managed. Advisers need to be mindful of how they mitigate conflicts when offering investment advice or selecting account types, ensuring their recommendations align with each client’s needs without bias.
2. Ensuring Compliance Program Effectiveness
The SEC places a high priority on the effectiveness of compliance programs, as mandated under Rule 206(4)-7 of the Investment Advisers Act of 1940. The effectiveness of an RIA’s compliance program hinges on:
- Annual reviews that critically evaluate the firm’s policies and procedures.
- Conflicts of interest management, particularly in valuation, fee calculations, and interactions with third-party affiliates.
- Integration of new technologies, such as AI, which must be accompanied by robust policies ensuring transparency and investor protection.
RIAs should review their existing policies to ensure that all aspects of their business—from marketing and client communications to trading and portfolio management—meet regulatory expectations. For firms that are expanding their services, such as integrating AI into advisory operations, it’s crucial to demonstrate that compliance measures are adapting to these innovations.
3. Spotlight on Private Fund Advisers
RIAs managing private funds will also be in the spotlight in 2025. Advisers must ensure that their disclosures to clients are not only comprehensive but also consistent with actual practices, especially during volatile market conditions. This is crucial for private funds that:
- Hold illiquid assets or commercial real estate, which can be significantly impacted by market shifts.
- Manage fee structures, ensuring that calculations are accurate and fairly disclosed to clients.
- Address conflicts of interest, such as those stemming from fund-level borrowing or transactions with affiliates.
As part of the SEC’s focus, there will also be a review of compliance with recent regulatory changes, such as amendments to Form PF and new marketing rules, to confirm that advisers’ policies align with the current expectations.
4. Focus on Recently Registered and Unexamined Advisers
Newer RIAs, as well as those that have not been examined recently, will receive attention this year. The goal is to foster an environment where compliance practices are being implemented effectively across all advisory firms, regardless of their size or tenure. New RIAs should proactively ensure that their compliance frameworks are fully developed, regularly reviewed, and capable of addressing both established and emerging risks.
5. Addressing the Rise of Artificial Intelligence in Advisory Operations
A significant emerging priority for 2025 is the use of Artificial Intelligence (AI) in advisory services. The SEC has recognized that AI is increasingly being integrated into portfolio management, trading, marketing, and compliance functions. This evolution necessitates careful oversight to ensure AI is used responsibly and does not inadvertently create conflicts of interest or violate fiduciary duties.
Examiners will review:
- Representations regarding AI capabilities to ensure that firms accurately convey how AI is used and its role in decision-making processes.
- Policies and procedures for AI integration, including whether these technologies are being monitored and supervised effectively.
- Investor protection, particularly assessing whether AI-driven recommendations align with each client’s investment profile and risk tolerance.
- Risk management, focusing on how firms protect client data and avoid potential biases in AI models.
The SEC aims to ensure that any automation within advisory operations adheres to existing compliance standards, is thoroughly tested, and is supported by clear disclosures to clients about how AI influences investment advice.
6. Information Security and Operational Resiliency
Information security and operational resiliency remain critical areas of focus, especially given the increasing number of cybersecurity threats. The SEC will evaluate how effectively RIAs safeguard sensitive client information and protect against operational disruptions. Specific areas of interest include:
- Incident response plans: Developing and testing procedures for responding to cybersecurity incidents to ensure that client data remains protected.
- Third-party risk management: Assessing the security of third-party service providers, especially those with access to client information or performing key operational functions.
- Compliance with Regulation S-ID and Regulation S-P: Ensuring policies are in place for identity theft prevention and safeguarding client data, including oversight of third-party vendors.
RIAs should regularly review their cybersecurity practices, focusing on maintaining robust safeguards to protect client records and assets.
7. Emerging Financial Technologies and Digital Tools
The SEC is also focusing on the use of emerging financial technologies and digital engagement tools. RIAs using automated investment tools, AI-driven platforms, or other technology-based advisory solutions should take note:
- Accuracy in representations: Ensure that descriptions of technology-enabled services accurately reflect their capabilities and limitations.
- Compliance with regulatory standards: Ensure that AI-driven recommendations align with clients’ financial goals and that automated tools adhere to regulatory requirements.
- Bias in AI models: RIAs must actively manage and monitor their AI models to prevent biases and ensure consistency with fiduciary responsibilities.
8. Crypto Assets and Digital Assets
For firms offering services related to crypto assets, the SEC will prioritize examining compliance related to these highly volatile products. The focus will include:
- Risk disclosures: Clear and comprehensive communication of the risks associated with investing in crypto assets, especially for retail investors.
- Custody practices: Ensuring compliance with custody rules to protect client assets, including how crypto assets are held.
- AML and KYC requirements: Maintaining strong Anti-Money Laundering (AML) and Know Your Customer (KYC) programs to verify the identity of investors and address the risks associated with crypto transactions.
9. Anti-Money Laundering (AML) Compliance
AML compliance is another area of priority for 2025. The SEC will examine whether RIAs have tailored AML programs that address the specific risks associated with their business model. Key areas include:
- Customer identification programs: Ensuring procedures are in place to verify the identity of clients, including beneficial owners.
- Ongoing monitoring and SAR filings: Making sure suspicious activities are reported via Suspicious Activity Reports (SARs) and that AML programs are continuously updated to mitigate emerging risks.
10. Examinations of Dual Registrants and Affiliated Entities
RIAs that are also broker-dealers, or have affiliated entities, will be subject to heightened examination. The SEC will focus on:
- Managing conflicts of interest: Ensuring that dual registrants appropriately disclose and mitigate conflicts, particularly when recommending proprietary products.
- Disclosure practices: Reviewing the transparency of disclosures to clients about when an adviser is acting as a broker-dealer versus an investment adviser.
11. Third-Party Vendor Risk Management
The SEC has emphasized the importance of third-party vendor risk management, especially as more firms rely on external service providers for critical functions. Examinations will include:
- Due diligence processes: Evaluating how advisers select and monitor vendors to ensure they meet regulatory requirements.
- Ongoing monitoring: Continuous assessment of vendors’ performance and their adherence to security and operational standards.
Prepare and Stay Ahead
With a renewed focus on fiduciary duties, compliance program efficacy, private fund oversight, AI integration, and vendor risk management, RIAs are encouraged to take a proactive approach to compliance this year. Ensuring that internal policies are robust and adaptable to evolving standards is crucial.
Corporate Nerd can support your firm in navigating these priorities through tailored compliance training and ongoing educational support. Our expertise in the Investment Adviser Act of 1940 and our comprehensive eLearning courses can help your team stay compliant and informed. If you need more insights or training solutions, please reach out to us at [email protected] or simply call us at 888 927 5117 —we’re here to help you succeed in this evolving regulatory landscape.
