1. Where RIA Compliance Gaps Usually Begin
RIA compliance gaps often develop after the business changes but the regulatory record does not. New products, compensation arrangements, clients, or custody practices can create inconsistencies that later become visible during an SEC examination.
When Form ADV No Longer Matches the Business
Form ADV, advisory agreements, client disclosures, and compliance policies should remain consistent with the firm's actual operations.
Changes that may require review include:
Advisory fee structures
Revenue-sharing arrangements
New investment strategies
Affiliates and related businesses
Client types or services
Conflicts of interest
Custody arrangements
Marketing practices
A new fee model, affiliated product, or private fund strategy may change the facts described in Form ADV or alter conflicts addressed by existing policies.
Broader baseline requirements can be reviewed under RIA compliance obligations, while fund-specific issues may require separate investment fund regulation analysis.
Annual Reviews Should Find Operational Changes
Advisers Act Rule 206(4)-7 requires SEC-registered advisers to adopt and implement written policies and procedures, review them no less frequently than annually, and designate a chief compliance officer.
The annual review should test whether those policies still work against current business practices.
The SEC's September 14, 2026 Risk Alert emphasized both the adequacy of compliance policies and the effectiveness of their implementation. Review may therefore include prior compliance events, changes in the firm's business, new conflicts, regulatory developments, testing results, and remediation of earlier deficiencies.
An annual review that identifies a problem without addressing the underlying practice can leave the same issue for examiners to identify later.
2. What SEC Examiners Compare against Actual Practice
An examination often tests consistency across records rather than asking whether the adviser possesses each required document. Policies, disclosures, client files, billing data, marketing materials, and trading records may be compared with actual operations.
On October 1, 2026, the SEC also issued The SEC Exam Handbook: A Practical Guide on Process and Engagement, describing the examination process from risk assessment through the disposition stage.
The Records Behind an Examination
Depending on the firm's business and examination scope, SEC staff may review:
Form ADV
Advisory agreements
Compliance policies
Annual-review documentation
Fee calculations
Client account records
Trade allocation
Custody arrangements
Marketing materials
Conflict disclosures
Compliance testing
Books and records
The 2026 examination priorities identify adviser fiduciary obligations, compliance-program effectiveness, and custody among important areas of review. The Division also prioritizes never-examined advisers, with particular emphasis on recently registered firms.
A fee described one way in client disclosures but calculated differently in account records can create an operational deficiency. The same issue arises when a stated conflict control is not reflected in actual recommendations or compensation practices.
From a Deficiency Finding to Remediation
A deficiency letter can require more than a written explanation to SEC staff.
The adviser may need to determine:
How long the problem existed
Which clients or accounts were affected
Whether fees require recalculation
Whether disclosures need amendment
Whether existing procedures were followed
Whether similar problems exist elsewhere
What remediation has occurred
Corrective work may involve billing logic, supervisory procedures, disclosure language, testing, approval workflows, or recordkeeping. Findings that indicate potential violations beyond ordinary remediation may also overlap with securities enforcement.
3. How Advisers Remediate Fees, Conflicts, and Disclosure Problems
Economic conflicts frequently become examination issues because SEC staff can compare written disclosures with actual compensation, recommendations, and client charges.
Fee and Conflict Mismatches
The SEC's June 9, 2026 Risk Alert addressed economic incentives affecting recommendations of products, services, and account types. Its observations included policies and procedures, fee and expense disclosures, and whether advisers calculated and charged fees consistently with client disclosures.
Review may focus on:
Advisory fee calculations
Revenue sharing
Cash sweep arrangements
Affiliated products
Share classes
Account recommendations
Compensation incentives
Expense allocation
The records should show how an economic incentive operated, what clients were told, and whether the firm's controls addressed it in practice.
Depending on the facts, a fiduciary conflict may require elimination, mitigation, disclosure, or another response. Disclosure language alone does not resolve whether the firm's actual conduct satisfied its obligations.
Marketing Evidence under Rule 206(4)-1
Supporting an advertisement and the controls used to approve it.
Relevant materials may include:
Support for performance claims
Calculation methodology
Approval records
Hypothetical-performance controls
Testimonial or endorsement arrangements
Promoter compensation
Third-party rating documentation
Required disclosures
Supporting books and records
Remediation may involve revising or withdrawing materials, correcting disclosures, documenting substantiation, changing approval procedures, or determining whether the same issue appears in other communications.
4. Custody Risks and the 2026 Crypto Custody Proposal
Custody can create examination exposure even when an adviser does not physically possess client securities or cash. Account authority, related-party relationships, contractual arrangements, and operational controls can all affect the analysis.
When an Adviser May Have Custody
Current Rule 206(4)-2 can implicate arrangements involving:
Authority over client funds or securities
Qualified custodians
Client account statements
Surprise examinations
Pooled vehicle audits
Related-person custody
Internal controls
An adviser may discover during an annual review or examination that its actual authority creates custody consequences not reflected in its compliance program.
That finding may require review of account documentation, advisory authority, custodian relationships, audit arrangements, and existing disclosures.
The October 2026 Crypto Custody Proposal
On October 1, 2026, the SEC proposed a new custody framework addressing crypto assets for registered investment advisers and, under a separate statutory framework, regulated funds including registered investment companies and business development companies.
The proposal addresses crypto custody arrangements, conditional self-custody, certain state trust companies as custodians, and related recordkeeping and disclosure requirements.
The proposal is not current law.
The SEC lists Release Nos. IA-7023 and IC-36353, File No. S7-2026-35, as a proposed rule. Advisers therefore need to distinguish existing Rule 206(4)-2 obligations from operational changes that may become relevant if a final rule is adopted.
Registered funds and BDCs should also be analyzed separately because their compliance and custody obligations implicate the Investment Company Act framework.
5. Frequently Asked Questions
Does an SEC examination mean the firm is under an enforcement investigation?
No. An SEC examination is part of the Division of Examinations' regulatory oversight process and is not itself an Enforcement investigation. Examination findings can, however, raise issues that warrant additional review or referral, depending on the facts.
Can an SEC examination finding be resolved without an enforcement action?
Yes. A firm may respond to examination findings through explanation, correction, disclosure changes, client remediation, policy revisions, or other corrective measures. Whether an issue remains within the examination process or creates enforcement risk depends on the nature and seriousness of the findings.
What happens if an adviser discovers a client fee overcharge during an SEC examination?
The adviser should determine the affected accounts, time period, calculation methodology, disclosure terms, and cause of the overcharge. The firm may also need to evaluate reimbursement, disclosure correction, books and records, supervisory controls, and how the remediation should be documented or communicated during the examination.
Regulatory representation becomes more important when a compliance issue moves beyond routine policy maintenance and begins to affect an SEC examination, client remediation, disclosure obligations, or potential enforcement exposure.
Legal review may be appropriate when:
An SEC examination notice or document request arrives
The firm is preparing for its first examination
Form ADV no longer matches actual operations
An annual review identifies a significant deficiency
Fee calculations do not match disclosures
A compensation arrangement creates a new conflict
Marketing claims cannot be substantiated
The firm discovers previously unrecognized custody
Digital assets are being added to advisory strategies
A deficiency letter requires remediation
SEC staff raises an issue that may move beyond the examination process
An investment management lawyer can evaluate the regulatory requirement, the underlying business practice, the evidence available to SEC staff, and the remedial steps already taken.
The objective is to determine where operational practice diverged from the regulatory framework, what remediation is required, whether client disclosures or filings need correction, and whether an examination issue could develop into enforcement exposure.
02 Oct, 2026
