2027 SEC Examination Priorities for Investment Advisers

The U.S. Securities and Exchange Commission’s (SEC’s) 2027 Examination Priorities reinforce the areas investment advisers should be prepared to explain, document, and supervise before an examination begins. While the 2027 Priorities reflect relatively modest year-over-year changes, they signal continued scrutiny of conflict management, emerging technology, cybersecurity safeguards, valuation practices, and private fund operations.

The SEC Division of Examinations (the Division) also highlights initiatives intended to make the examination process more transparent, including the new SEC Exam Handbook. For investment advisers and investment companies, the most meaningful updates reflect themes that have emerged through recent examinations, risk alerts, enforcement activity, and other SEC statements.

Areas of Focus for Investment Adviser Exams

Disclosure

While disclosure review has long provided the backbone for examinations of investment advisers, the 2027 Priorities emphasize that examiners will review whether advisers have provided full and fair disclosures of all material facts relating to their advisory relationships. This indicates a more explicit focus on the adequacy of disclosures.

Investment Due Diligence

The 2027 Priorities expand on prior language by stating that examiners will review whether advisers conduct reasonable due diligence into products or services recommended to clients. Advisers should be prepared to explain how their diligence processes are designed, followed, and documented.

Compliance Policies and Procedures

Following the Division’s September 2026 Risk Alert on investment adviser annual compliance reviews, the 2027 Priorities place renewed examination focus on the effectiveness of the advisers’ compliance policies and procedures. In addition, following the recent joint statement by the SEC Chief Accountant and the Director of the Division of Investment Management on the valuation of private assets, the 2027 Priorities state that examiners will assess the reasonableness of advisers’ valuation processes and methodologies.

Economic Conflicts of Interest

The 2027 Priorities identify advisers’ fiduciary obligations relating to economic conflicts of interest as an examination priority. Consistent with the Division’s June 2026 Risk Alert, the Priorities identify fee rebates, fee and expense calculations, cash management, quid pro quo arrangements, deposits, and withdrawals as potential areas of focus.

Investment advisers should consider whether their policies, disclosures, and oversight processes demonstrate how economic conflicts are identified, mitigated, and disclosed.

Investment Process

In addition to reviewing the adviser’s due diligence of particular investments, the 2027 Priorities indicate that examiners will evaluate the adviser’s investment process and whether the investment products or strategies recommended are consistent with clients’ profiles, investment objectives, risk tolerance, and other mandates.

Proxy Advisory Firm Oversight

In December 2025, the President issued an Executive Order directing the SEC to, among other things, “examine whether proxy advisors serve as a vehicle for investment advisers to coordinate their voting decisions.” In a subsequent speech, the Director of the SEC’s Division of Investment Management said that, in his view, an investment adviser that over-relies on proxy advisors may breach its fiduciary duty or become part of a Section 13D group under the Exchange Act.

The 2027 Priorities indicate that the Division of Examinations is supporting the SEC’s work in response to the Executive Order. They identify advisers’ reliance on proxy advisory firms as an examination focus. Examiners may assess how advisers evaluate proxy advisory recommendations, understand the basis for those recommendations, identify potential conflicts, and determine whether reliance satisfies applicable legal obligations.

This focus also aligns with recent SEC attention to proxy advisory firms, including the SEC’s subpoena-enforcement action involving Institutional Shareholder Services (ISS). The SEC has sought information relating to ISS’s proxy recommendations and votes as part of its examination and investigation activity.

Private Funds

After eliminating the dedicated section on private funds in the 2026 Priorities, the Division has added back a paragraph to the 2027 Priorities to focus on examination priorities for private funds. The Division’s priorities for private funds sharpen the general focus on compliance policies and procedures to hone in on policies and procedures designed to address fund and investment level risks. The 2027 priorities for private funds also reveal that examiners will scrutinize private funds’ investment-related risk disclosures, including use of debt and fund-level lines of credit, use of affiliated service providers, and the accuracy of fee and expense calculations at both the fund and investment levels.

Investment Companies

The 2027 Exam Priorities indicate that examiners will increase their focus on illiquid investments with a new focus on private credit. The Division also includes a new focus on registered investment companies (RICs) that operate in reliance on exemptive orders, including their implementation and compliance with those orders.

This addition reflects the SEC’s growing concern regarding retail fund exposure to private credit markets. This consequential addition suggests that examiners may now specifically review exemptive orders, board approvals, compliance testing, periodic certifications, and evidence supporting adherence to exemptive-order conditions. The new focus is particularly relevant for interval funds, tender-offer funds, BDCs, manager-of-managers funds, ETFs that do not rely on Rule 6c-11, and certain fund-of-funds arrangements.

The 2027 Priorities also give additional attention to BDCs, inverse ETFs, and leveraged ETFs, signaling heightened interest in leverage risk, volatility risk, retail-investor understanding, and portfolio management controls within these products, and more emphasis on redemption risk, valuation, and conflicts disclosures. These additions likely reflect increasing SEC concern regarding liquidity management and redemption pressures in less-liquid portfolios.

Retailization

The Commission’s retailization agenda appears to have boosted the prominence of the Division’s longstanding objective to protect retail investors, particularly older investors and investors saving for retirement. The 2027 Priorities indicate that the Division will prioritize for examination advisers that recommend products that are difficult to trade, have unusual features, or are illiquid. They highlight as examples, alternative investments, business development companies (BDCs), special purpose vehicles, and complex ETFs and options.

The 2027 Priorities also include a new emphasis on investment features that affect suitability, including liquidity and volatility across diverse market conditions, cost, and the “potential rewards” that justify recommendations. Wealth managers and investment advisers to private funds and investment companies with plans to participate in retailization should all be paying close attention as the Division continues to elaborate on its expectations in the retailization context.

Cybersecurity

Cybersecurity remains a key examination priority for the Division of Examinations. Firms should expect examiners to assess how they safeguard customer information, including their policies and procedures regarding governance practices, data loss prevention, access controls, account management, and the response and recovery protocols for cyber-related incidents…” The Division will also assess risks associated with firms’ use of third-party service providers, including the effectiveness of their risk management in these areas.

Risks of Emerging Technologies

The 2027 Priorities expand the Division’s focus on how firms use emerging technologies while continuing to meet existing regulatory obligations. The Division will examine whether firms’ representations about their use of AI, now referred to as Super Intelligence (SI), are fair and accurate, whether their operations and controls align with investor disclosures, and whether SI-generated advice or recommendations are consistent with investors’ profiles and stated strategies. Firms that use SI for automated investment advice may receive additional scrutiny.

The Division also identifies cybersecurity and operational risks associated with emerging technologies as examination priorities. Firms should consider how these technologies could be used to facilitate phishing, deep-fake voice and video, and other social-engineering attacks. Governance should address how emerging technology tools are approved, used, tested, monitored, and escalated when issues arise.

Regulation S-P Safeguards and Incident Response

Following the 2025 and 2026 compliance dates for the amended Regulation S-P requirements, the focus is shifting from implementation readiness to whether firms have developed, implemented, and maintained effective safeguards to protect customer information. These safeguards include administrative, technical, and physical controls.

The Priorities highlight incident response, customer notification, and service-provider oversight as areas of exam focus. Firms should be prepared to demonstrate that their written policies and procedures align with their operational practices and that relevant personnel understand their responsibilities when an incident occurs.

Valuation Processes and Methodologies

The 2027 Priorities expressly state that examiners will assess the reasonableness of advisers’ valuation processes and methodologies as part of their review of fiduciary obligations.

The Priorities also identify difficult-to-trade, unusual, and illiquid products for attention, including loans provided by private funds or BDCs, as well as investments in private companies held through special purpose vehicles (SPVs). Advisers should review whether their valuation governance, documentation, methodologies, and challenge processes are appropriate for the assets they manage.

Private Fund Fees, Expenses, and Financing Arrangements

For private fund advisers, the 2027 Priorities identify disclosures and controls related to fund-level debt and lines of credit, affiliated service providers, investment allocations, and the accuracy of fee and expense calculations at both the fund and investment levels.

The specific reference to investment-level fees and expenses indicates that advisers should review whether costs associated with particular investments are calculated, allocated, and disclosed appropriately.