March 27, 2023

Observations from Examinations of Newly-Registered Advisers*

I. Introduction

The Division of Examinations recognizes that investment advisers that have recently registered 

with the SEC (“newly-registered advisers”) may face unique compliance risks and issues.1

 As 

part of its risk-based examination program, the Division has noted its interest in conducting 

examinations of newly-registered advisers in each of its published examination priorities since 

2013.2

 This Risk Alert discusses the typical focus areas reviewed during examinations of newlyregistered advisers and shares staff observations regarding compliance policies and procedures, 

disclosures, and marketing practices. 

II. Newly-Registered Advisers and Examinations 

Examinations of newly-registered advisers provide an opportunity for early engagement between

advisers and the staff. Such examinations allow the staff to: provide advisers with information 

about the Division’s examination program, conduct preliminary risk assessments, facilitate 

discussions regarding the advisers’ operations and risk characteristics, and promote compliance 

with applicable statutes and regulations. One of the ways the staff assesses advisers’ risks is by 

learning about their conflicts of interest and how these risks are mitigated and managed by the 

advisers through their compliance programs.3 The Division’s examinations of newly-registered 

advisers often focus on whether these firms have: (1) identified and addressed conflicts of 

interest; 4 (2) provided clients with full and fair disclosure such that clients can provide informed 

 

* This Risk Alert represents the views of the staff of the Division of Examinations (the “Division” or “EXAMS”). This Risk 

Alert is not a rule, regulation, or statement of the Securities and Exchange Commission (the “SEC” or the “Commission”). The 

Commission has neither approved nor disapproved the content of this Risk Alert. This Risk Alert, like all staff statements, has 

no legal force or effect; it does not alter or amend applicable law, and it creates no new or additional obligations for any 

person. 

1 The number of SEC-registered advisers has increased by more than 20% within the past five years.

2

 See Examination Priorities under “Office Resources - Priorities Memos”. 

3 An adviser’s fiduciary duty is established by and enforced through Section 206 of the Investment Advisers Act of 1940 

(“Advisers Act”). See Commission Interpretation Regarding Standard of Conduct for Investment Advisers, Advisers Act Rel. 

No. 5248 (Jun. 5, 2019) (“Fiduciary Interpretation”) (an adviser’s fiduciary duty is broad and applies to the entire adviserclient relationship). 

4 See Fiduciary Interpretation supra note 3 (an adviser must, at all times, serve the best interest of its client and not subordinate 

its client’s interest to its own and eliminate, or at least expose through full and fair disclosure, all conflicts of interest which 

might incline an investment adviser—consciously or unconsciously—to render advice which was not disinterested). Also, one 

of the ways the Division assesses an investment adviser’s risk and conflicts of interest is by analyzing its responses to Form 

ADV. 
consent;5

 and (3) adopted effective compliance programs.6 

A. Examination Scope

For the past several years, the Division has prioritized examining newly-registered advisers 

within a reasonable period of time after the adviser’s SEC registration has become effective. 

These examinations typically involve document requests and interviews with advisory personnel 

addressing the adviser’s: (1) business and investment activities; (2) organizational affiliations; 

(3) compliance policies and procedures; and (4) disclosures to clients. The staff requests 

information and documents for a defined review period to assess the adviser’s compliance with 

the Advisers Act and to determine whether the adviser’s representations and disclosures made to 

its clients and in SEC filings are consistent with the adviser’s actual practices.

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 For example, 

among other items, the staff typically requests and reviews the information below. 

• General information to provide the staff with an understanding of the adviser’s business and 

operations, such as: (1) organizational charts; (2) documentation to support eligibility for 

SEC registration; (3) information about ownership and control of the adviser and its 

affiliates; (4) information about current and former advisory personnel, such as the reasons 

for departure for former personnel (if available), and the roles, responsibilities, physical 

locations for current personnel; (5) financial information, including the balance sheet, trial 

balance, and income statement; and (6) information about any threatened, pending, or settled 

litigation or arbitration involving the adviser or any of its supervised persons. 

• Demographic and other specific data regarding each advisory client account, including 

information about: (1) advisory services provided, such as portfolio management, financial 

planning, and/or bundled wrap fee arrangements; (2) types of client accounts serviced, such 

as individual, defined benefit retirement plan, registered fund, or private fund; (3) advisory 

authority to trade in the account, such as whether it has discretionary authority; (4) advisory 

 

5 See Fiduciary Interpretation supra note 3 (to meet its duty of loyalty, an adviser must make full and fair disclosure to its clients 

of all material facts relating to the advisory relationship. Material facts relating to the advisory relationship include the 

capacity in which the firm is acting with respect to the advice provided). See also: (1) Form ADV (the uniform form used by 

advisers to register with both the SEC and state securities authorities, Parts 2 and 3 of which are a series of items that contain 

disclosure requirements for advisers to provide to certain clients, including any required supplements); (2) SEC, Form CRS 

Relationship Summary and Amendments to Form ADV, Advisers Act Rel. No. 5247 (Jun. 5, 2019) (“Form CRS”) (adopting 

new rules and forms and amendments to rules and forms, including Form ADV, Part 3, which requires advisers to briefly 

inform retail investors about: the types of client and customer relationships and services the firm offers; the fees, costs, 

conflicts of interest, and required standard of conduct associated with those relationships and services; whether the firm and its 

financial professionals currently have reportable legal or disciplinary history; and how to obtain additional information about 

the firm); and (3) SEC, Investment Adviser Marketing, Advisers Act Rel. No. 5653 (Dec. 22, 2020) (“Marketing Rule 

Adopting Release”) (adopting amendments to update rules that govern adviser marketing, and creating a merged rule that 

replaces both the prior advertising and cash solicitation rules). 

6 See Fiduciary Interpretation supra note 3 (an adviser’s duty of care encompasses the duty to provide advice and monitoring 

with a frequency that is in the best interest of the client, taking into account the scope of the agreed relationship). See also, 

SEC, Final Rule: Compliance Programs and Investment Companies and Investment Advisers, Advisers Act Rel. No. 2204 

(Dec. 17, 2003) (“Compliance Rule Adopting Release”) (requiring each SEC-registered adviser to adopt and implement 

written policies and procedures reasonably designed to prevent violation of the Advisers Act and its rules, review those 

policies and procedures annually for their adequacy and the effectiveness of their implementation, and designate a chief 

compliance officer to be responsible for administering the adviser’s policies and procedures). 

7 See EXAMS, Examination Information for Entities Subject to Examination or Inspection by the Commission (Feb. 2021) for 

additional information regarding the Division’s examination process.
personnel servicing and overseeing the account; (5) assets under management advised by the 

firm; (6) third-party service providers, such as custodians, administrators, and auditors; and 

(7) investment strategies, such as global equity, high-yield, aggressive growth, long-short, or 

statistical arbitrage. In addition, the staff often requests documents supporting the adviser’s 

representations, such as copies of select contracts, agreements, or third-party account 

statements. 

• Information regarding the adviser’s compliance program, risk management practices and 

framework, and internal controls, including written compliance policies and procedures and 

the adviser’s code of ethics.

• Information to facilitate the staff testing for regulatory compliance in certain areas, 

including portfolio management and trading activities, such as a record of specific 

information for all advisory clients’ securities holdings and transactions. 

• Communication used by the adviser to inform or solicit new and existing clients, including 

disclosure documents and advertising, such as pamphlets, social media, mass mailings,

websites, and blogs. 

During the examination, the staff often interviews advisory personnel to understand the adviser’s 

business, operations, investment activities, and compliance program. These interviews, among 

other examination procedures, assist the staff in assessing the adviser’s tone at the top and 

culture of compliance. These assessments can be important factors in the staff’s review of the 

effectiveness of the adviser’s compliance program.

B. Staff Observations From Recent Newly-Registered Adviser Examinations 

The staff’s review of recent newly-registered adviser examinations identified issues in the 

following three areas, among others: (1) compliance policies and procedures; (2) disclosure 

documents and filings; and (3) marketing. Each of these areas is described further below. 

• Compliance Policies and Procedures.

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 The staff observed compliance policies and 

procedures that: (1) did not adequately address certain risk areas applicable to the firm, such 

as portfolio management and fee billing; (2) omitted procedures to enforce stated policies, 

such as stating the advisers’ policy is to seek best execution, but not having any procedures

to evaluate periodically and systematically the execution quality of the broker-dealers 

executing their clients’ transactions;

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 and/or (3) were not followed by advisory personnel, 

typically because the personnel were not aware of the policies or procedures or the policies 

or procedures were not consistent with their businesses or operations. Additionally, the staff 

observed advisers’ annual compliance reviews that did not address the adequacy of the 

 

8 See Advisers Act Rule 206(4)-7 (“Compliance Rule”) and Compliance Rule Adopting Release supra note 6. See also

EXAMS, Observations: Investment Adviser Compliance Programs (Nov. 19, 2020) (noting that Compliance Rule-related 

deficiencies are among the most common cited by the staff and providing examples of notable deficiencies or weaknesses 

identified by the staff in connection with this rule). 

9 See Division, Compliance Issues Related to Best Execution by Investment Advisers (Jul. 11, 2018) (discussing examination 

observations when an adviser has the responsibility to select broker-dealers and execute client trades). 
advisers’ policies and procedures and the effectiveness of their implementation. For 

example, the staff observed advisers that: 

o Used off-the-shelf compliance manuals that were not tailored for consistency with the 

advisers’ operations and business lines. 

o May not have devoted sufficient resources to comply with regulatory requirements and 

their own policies and procedures (e.g., advisers may have assigned additional and 

unrelated responsibilities to the chief compliance officer (“CCO”), resulting in limited 

time for the CCO to dedicate to compliance), or to ensure compliance personnel 

understood actual business practices. 

o Had undisclosed conflicts of interest created by the multiple roles and responsibilities of 

advisory personnel carrying out the assigned duties, and these conflicts were not 

mitigated.

10

o Outsourced certain business and compliance functions without assessing how these 

outsourced responsibilities were being performed or whether they were consistent with 

the advisers’ compliance policies and procedures. 

o Did not have adequate business continuity plans, including succession plans.11

• Disclosure Documents and Filings.

12 The staff observed required disclosure documents that 

contained omissions or inaccurate information and untimely filings (i.e., material or annual 

form updates were not made within prescribed timeframes or at all). The disclosure 

omissions and inaccuracies were related to advisers’: (1) fees and compensation; (2) business 

or operations (including affiliates, other relationships, number of clients, and assets under 

management); (3) services offered to clients, such as disclosure regarding advisers’ 

investment strategy (including the use of models), aggregate trading, and account reviews; 

 

10 See Fiduciary Interpretation supra note 3 (“[W]here an investment adviser cannot fully and fairly disclose a conflict of interest 

to a client such that the client can provide informed consent, the adviser should either eliminate the conflict or adequately

mitigate (i.e., modify practices to reduce) the conflict such that full and fair disclosure and informed consent are possible.”).

11 See Compliance Rule Adopting Release supra note 6 (stating that an adviser’s policies and procedures should address its 

business continuity plans as part of its “obligation to take steps to protect the clients' interests from being placed at risk as a 

result of the adviser's inability to provide advisory services after, for example, a natural disaster or, in the case of some smaller 

firms, the death of the owner or key personnel”).

12 Advisers Act Rule 204-3 requires each SEC-registered adviser to provide its clients and prospective clients with a written 

disclosure document (“brochure”) before or at the time of entering into a contract with the client and annually thereafter. An 

adviser generally may comply with this brochure requirement by providing its Form ADV, Part 2A. Similarly, Advisers Act 

Rule 204-5 requires each SEC-registered adviser to deliver Form CRS (a brief “relationship summary”) to its retail clients at

the beginning of a relationship with the client and when amendments to the relationship summary are required to be made, a 

different new account is opened, and certain other events occur (e.g., a retirement account is rolled over). Advisers also must 

make Form CRS available on the advisers’ website, if the adviser has one. Advisers Act Rule 204-2(a)(14) also requires an 

adviser to: (1) maintain a copy of each brochure and relationship summary and each amendment or revision to these disclosure 

documents that was given or sent to clients or prospective clients; and (2) maintain a record of the dates on which such 

disclosure documents were given or offered to be given to any client or prospective client who subsequently becomes a client. 

These documents also must be filed electronically with the Investment Adviser Registration Depository and updated when 

material changes occur.
(4) disciplinary information; (5) websites and social media accounts; and (6) conflicts of 

interest.

• Marketing.

13 The staff observed adviser marketing materials that appeared to contain false 

or misleading information, including inaccurate information about advisory personnel 

professional experience or credentials, third-party rankings, and performance. Advisers 

were also unable to substantiate certain factual claims. 

In addition to the staff observations described above, previously published Division Risk Alerts

contain information regarding common examination observations that are broadly applicable to 

SEC-registered advisers, including newly-registered advisers.

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III. Conclusion 

The Division has focused, and will continue to focus, on examinations of newly-registered 

advisers to provide an opportunity for early engagement with advisers and to assist firms in their 

compliance efforts. Advisers are encouraged to review their compliance policies and procedures, 

marketing, and disclosures for the issues discussed herein. To assist advisers further, the 

Division has provided some resources with reference links as an attachment to this Risk Alert. 

 

13 The examinations described in this Risk Alert predate the Commission’s new rule governing advisers’ marketing practices. See

Marketing Rule Adopting Release supra note 5 (among the significant revisions to Advisers Act Rule 206(4)-1, the new 

marketing rule addresses the marketing of private funds and provides additional specificity regarding misleading marketing 

materials). Nevertheless, these observations are relevant to advisers’ compliance with this new rule. See also, Division, 

Examinations Focused on the New Investment Adviser Marketing Rule (Sept. 19, 2022).

14 See Division Risk Alerts (under “Office Resources – Risk Alerts” tab). 

This Risk Alert is intended to highlight for firms risks and issues that Division staff has 

identified. In addition, this Risk Alert describes risks that firms may consider to (1) assess their 

supervisory, compliance, and/or other risk management systems related to these risks, and (2)

make any changes, as may be appropriate, to address or strengthen such systems. Other risks 

besides those described in this Risk Alert may be appropriate to consider, and some issues 

discussed in this Risk Alert may not be relevant to a particular firm’s business. The adequacy of 

supervisory, compliance and other risk management systems can be determined only with 

reference to the profile of each specific firm and other facts and circumstances.
Attachment: Resources

The U.S. Securities & Exchange Commission’s (“SEC” or “Commission”) website 

(www.sec.gov) contains information and links to relevant laws and rules; regulatory actions, 

such as rulemaking, interpretive, and concept releases; SEC staff-issued guidance, FAQs, 

speeches, special studies, no-action and interpretive letters (generally from 2001 to present), and 

other documents; enforcement actions; and educational materials. Advisers may find the 

following non-exclusive list of informational sources to be helpful.1

 

Information Regarding the Division and Examinations

Examination Priorities (see 

“Office Resources – 

Priorities Memo” tab)

The annual publication of the Division’s examination priorities furthers the SEC’s 

mission and aligns with the Division’s goals to promote and improve compliance, 

prevent fraud, monitor risk, and inform policy. The examination priorities provide 

investors and registrants with transparency into those areas the staff believes bring 

heightened risks to investors, registrants, and the markets.

Risk Alerts (see “Office 

Resources – Risk Alerts” tab)

Risk Alerts are one way that the Division provides transparency and supports registrants’ 

compliance efforts. Risk Alerts, which cover a wide array of topics, are designed to raise 

awareness of compliance and industry risks and are meant to encourage firms to think 

about their own policies and procedures in particular areas. 

Compliance Outreach 

Program

SEC staff engage with registrants through initiatives such as our Compliance Outreach 

Program, through which the staff seeks to promote compliance by informing advisers 

and funds about their obligations under the federal securities laws. The Compliance 

Outreach Program is designed to provide senior officers, including CCOs, with a forum 

to discuss compliance issues, share experiences, engage in discussions with Commission 

staff, and learn about effective compliance practices. The program features both regional 

meetings at various locations across the country and national seminars in Washington 

D.C.

Overview of Examinations 

Conducted by the Division

The Division’s website contains information about the examination program, including 

its mission, offices and program areas, and leadership. It also provides links to various 

helpful resources (by registrant type), examination-related forms and announcements, as 

well as the examination hotline, through which registrants can communicate comments, 

complaints, or concerns. 

Listing of All SEC Regional 

Offices 

Registrants are typically contacted by Division staff located within the SEC’s regional 

offices. To identify the states overseen by each region, including contact information for 

senior examination staff, click on the regional office links. The regional offices are 

assigned to an adviser based on the firm’s Principal Office and Place of Business, as 

identified on Form ADV. 

Examination Brochure

The Examination Brochure is provided to all registrants at the beginning of an 

examination. It provides information regarding the purpose of examinations, the 

examination process, the steps taken at the completion of an examination, and the SEC’s 

Office of the Whistleblower.

Form 1661

Form 1661 is provided to all registrants at the beginning of an examination. It provides 

information regarding the mandatory production of certain documents to SEC staff, and 

the effect of not supplying such information or providing the staff with false statements 

or documents. The form also provides information regarding the principal and routine 

uses of information requested by the staff and how registrants may submit a request that 

their information not be disclosed under the Freedom of Information Act. 

 

1 This list does not provide a complete description of all of the legal obligations of SEC-registered advisers, nor does it provide a 

comprehensive inventory of resources that may be available. 
Information Regarding the Division and Examinations

Division of Investment 

Management

The Division of Investment Management has primary responsibility for administering 

the Investment Company Act and Advisers Act, which includes developing regulatory 

policy for investment companies (e.g., mutual funds, including money market funds, 

closed-end funds, business development companies, unit investment trusts, variable 

insurance products, and exchange-traded funds) and for investment advisers. This site 

contains information and links to relevant laws and rules, regulatory actions, such as 

rulemaking, interpretive, and concept releases.

Advisers Act and the rules 

thereunder

The Advisers Act regulates investment advisers. With certain exceptions, this Act 

requires that firms or individuals that are in the business of advising others about 

securities investments and are compensated for that advice must register with the SEC or 

states and conform to regulations designed to protect investors. Generally only advisers 

who have at least $100 million of assets under management or advise a registered 

investment company must register with the Commission. Other advisers typically 

register with the states in which they meet the registration requirements of that state. 

Investment Company Act and 

the rules thereunder

The Investment Company Act regulates the organization of companies, including mutual 

funds, that engage primarily in investing, reinvesting, and trading in securities, and 

whose own securities are offered to the investing public. The Act requires these 

companies to disclose their financial condition and investment policies to investors when 

shares are initially sold and, subsequently, on a regular basis. The focus of this Act is on 

disclosure to the investing public of information about the fund and its investment 

objectives, as well as on investment company structure and operations. 

Form ADV Advisers use Form ADV to apply for registration as investment advisers with the SEC

and the state securities authorities, and registered advisers must amend their Form ADV 

each year by filing an annual updating amendment within 90 days after the end of their

fiscal year. While this form is filed electronically via Investment Adviser Registration 

Depository (“IARD”), advisers may find it useful to review Form ADV, General 

Instructions to Form ADV, and Glossary and frequently asked questions about Form 

ADV and IARD as part of their filing process.

Brochure (Form ADV, Part 

2)

Under SEC and similar state rules investment advisers are required to deliver to clients 

and prospective clients a brochure disclosing information about their business practices, 

fees, conflicts of interest, and disciplinary information. Advisers also may be required to 

deliver a brochure supplement disclosing information about one or more of their 

supervised persons. Part 2 of Form ADV sets out the minimum required disclosure that 

an adviser’s brochure (Part 2A for a firm brochure, or Appendix 1 for a wrap fee 

program brochure) and brochure supplements (Part 2B) must contain.

Form CRS (Form ADV, Part 

3)

SEC rules require advisers and brokers to provide new, prospective, and existing retail 

customers and clients with a Form CRS “relationship summary,” file their relationship 

summary with the SEC and post the current relationship summary on the firm’s public 

website, if the firm has one. While advisers must file their initial relationship summaries 

(and any amendments) with the SEC using IARD, advisers subject to this filing 

obligation may find it useful to review Form CRS and frequently asked questions about 

Form CRS as part of their filing process.

SEC-staff statements and noaction letters

SEC staff-issued statements and no-action letters provided by the Division of Investment 

Management are informal resource and guidance updates that may be of assistance to 

practitioners and others; they represent the views of SEC staff and are not a rule, 

regulation or statement of the Commission, and the Commission has neither approved 

nor disapproved its content. Examples of such resources include the following Staff 

Bulletins: (1) Standards of Conduct for Broker-Dealers and Investment Advisers 

Conflicts of Interest; and (2) Standards of conduct for Broker-Dealers and Investment 

Advisers Account Recommendations for Retail Investors.