Key takeaways from the SEC’s 2025 exam priorities

By Jennifer Dickinson, Senior Managing Director, U.S.

On October 21, the U.S. Securities and Exchange Commission’s (SEC) Division of Examinations (EXAMS) issued its priorities for 2025.  Below, we summarize some key takeaways.  We encourage firms to read the full document, which is available here.

Investment advisers

Examiners will assess whether the provision of investment advice satisfies the fiduciary obligations advisers owe to their clients. Specifically, EXAMS is concerned about recommendations relating to:

• High-cost products
• Unconventional instruments
• Illiquid and difficult-to-value assets
• Assets sensitive to interest rates or changing market conditions such as commercial real estate

For dually registered broker-dealer/investment advisers, or advisers with broker-dealer affiliates, EXAMS will focus on conflicts of interest, including:

• Suitability of investment advice and recommendations
• Disclosures regarding the capacity in which recommendations are made
• Account selection practices, including rollovers from existing brokerage accounts to advisory accounts
• Financial conflicts that impact impartial advice and best execution and non-standard fee arrangements

Reviews of advisers’ compliance programs will focus on:

• Advisers that outsource investment selection and management
• Other sources of revenue such as selling non-investment products to clients
• Fee calculations and the disclosure of fee-related conflicts, particularly when some clients negotiate lower fees when similar services are provided to other clients at higher fees
• Strategy or operational considerations, e.g. if
  • Clients invest in illiquid or difficult- to-value assets, such as commercial real estate, examiners will look more deeply into valuations
  • An adviser uses artificial intelligence (AI) for functions such as portfolio management, trading, marketing, and compliance, examiners will scrutinize related policies and disclosures
  • An adviser’s workforce includes many contractors that are geographically dispersed, examiners will inquire into supervision and oversight procedures
  • There are changes to business models or the adviser is new to advising types of assets, clients, or services, examiners will assess compliance program changes

Citing the size and importance of the private funds industry, EXAMS expects to focus on:

• Disclosures and fiduciary duty considerations for strategies that may be sensitive to market volatility and/or interest rate changes, e.g. commercial real estate, illiquid assets, and private credit; similarly, advisers that are experiencing poor performance and significant withdrawals and/or hold more leverage or difficult-to-value assets
• Fees and expenses at both the fund and investment levels, including accuracy and allocation considerations, e.g.:
  • Valuation of illiquid assets
  • Calculation of post commitment period management fees
  • Management fee offsets
  • Adequacy of disclosures
• Conflicts disclosures and adequacy of policies and procedures relating to:
  • Use of debt, fund-level lines of credit
  • Investment allocations
  • Adviser-led secondary transactions
  • Transactions between fund(s) and/ or other related parties
  • Investments held by multiple funds
  • Use of affiliated service providers
• Compliance with recently adopted SEC rules and forms, e.g., amendments to Form PF and intra-year filing requirements as well as the Marketing Rule

Registered Investment Companies (RICs)

Given their importance to retail investors, EXAMS will review mutual funds and exchange-traded funds compliance programs, disclosures, and governance, focusing particularly on:

• Fund fees and expenses, and any related waivers and reimbursements
• Oversight of service providers
• Consistency among portfolio management practices and disclosures, claims about investment strategies or approaches, and fund filings and marketing materials
• Issues associated with market volatility
• Exposure to commercial real estate
• Compliance with new and amended rules

Broker-dealers

Examiners will focus on compliance with Regulation Best Interest, including:

• Recommendations regarding products, investment strategies, and account types and whether the firm has a reasonable basis to believe the recommendation is in the best interest of the customer and does not place the broker’s interests ahead of the customer’s interests
• Disclosures regarding conflicts of interest
• Conflict identification, mitigation and elimination practices
• Processes for reviewing reasonably available alternatives to recommendations
• Factors relating to clients’ investment profiles such as investment goals and account characteristics

EXAMS is particularly interested in recommendations of products that are complex, illiquid, or present higher risk to clients, such as:

• Highly leveraged or inverse products
• Crypto assets
• Structured products
• Alternative investments
• Not registered with the SEC
• Complex fee structures or return calculations
• Based on exotic benchmarks
• Growth areas for retail investment

Examinations may also focus on recommendations:

• That use automated tools or other digital engagement practices
• Related to opening different account types, such as option, margin and self-directed IRA accounts
• Made to certain types of investors, such as older investors and those saving for retirement or college

Relatedly, EXAMS will review a firm’s Client Relationship Summary (CRS) and compliance with filing and delivery requirements, particularly how the CRS describes:

• The relationships and services that it offers to retail customers
• Fees and costs
• Conflicts of interest
• Whether the broker-dealer discloses any disciplinary history

Examiners will assess broker-dealers’ compliance with the net capital rule, the customer protection rule and related internal processes, procedures, and controls.  Focus areas will include:

• Accounting practices impacted by recent regulatory changes
• Timeliness of financial notifications and other required filings
• Operational resiliency programs, including supervision of third-party service providers that contribute to the records used to prepare financial reporting
• Credit, market, and liquidity risk management controls to ensure that firms have sufficient liquidity to manage stress events

Finally, EXAMS will review equity and fixed income trading practices, including:

• The structure, marketing, fees, and potential conflicts associated with bank sweep programs, fully paid lending programs, and mobile apps/online trading platforms
• Trading in pre-IPO companies and the sale of private company shares in secondary markets
• Execution of retail orders, particularly:
  • Whether they are marked as “held” or “not held,” and the consistency of the marking with retail instructions
  • Pricing and valuation of illiquid or retail-focused instruments such as variable rate demand obligations, other municipal securities, and non-traded REITs
• Compliance with Regulation SHO and whether broker-dealers are appropriately relying on the bona fide market making exception, including whether quoting activity is away from the inside bid/offer

Other risk areas for various market participants

At IQ-EQ, our compliance consultants have the experience to handle all U.S. regulatory requirements of the SEC and will work closely with you to keep your firm compliant in the face of new and evolving rules. Find out more about our U.S. compliance consulting services.

About the author

Jennifer is a Senior Managing Director for IQ-EQ, based in Chicago. She has over 15 years of experience involving compliance and legal matters for private fund managers (hedge, private equity, venture, real estate, and commodity pools), traditional investment advisors, family offices and commodity trading advisers.