7 Top SEC Exam Priorities for 2024

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1. Regulation Best Interest: Recommendations

As it relates to Reg BI, exams will prioritize broker-dealer recommendations:

with regard to products, investment strategies and account types;
disclosures made to investors regarding conflicts of interest;
conflict mitigation practices;
processes for reviewing reasonably available alternatives; and
factors considered in light of the investor’s investment profile, including investment goals and account characteristics.

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2. Regulation Best Interest: Products

Reg BI exams will also focus on recommended products that are:

complex, such as derivatives and leveraged Exchange-traded funds;
high cost, such as variable annuities;
illiquid, such as nontraded REITs and private placements;
proprietary; and
microcap securities.

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3. Investment Advisors

Exams will focus on investment advice provided to clients with regard to products, investment strategies and account types, particularly those regarding:

complex products, such as derivatives and leveraged ETFs;
high-cost and illiquid products, such as variable annuities and non-traded real estate investment trusts (REITs); and
unconventional strategies, including those that purport to address rising interest rates. Investment advice provided to certain types of clients, such as older investors and those saving for retirement, may be a particular focus.

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4. Form CRS

Exams will review the content of a broker-dealer’s customer relationship summary, such as how the broker-dealer describes:

the relationships and services that it offers to retail customers;
its fees and costs; and
its conflicts of interest, and whether the BD discloses any disciplinary history. These exams will also evaluate whether BDs have met their obligations to file their Form CRS with the commission and deliver it to retail customers.

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5. Marketing Rule

Exam will assess whether advisors, including advisors to private funds, have:

adopted and implemented reasonably designed written policies and procedures to prevent violations of the Advisers Act and its rules, including the Marketing Rule;
appropriately disclosed their marketing-related information on Form ADV; and
maintained substantiation of their processes and other required books and records.

Marketing practice reviews will also assess whether disseminated ads include any untrue statements of a material fact, are materially misleading, or are otherwise deceptive and, as applicable, comply with the requirements on performance, third-party ratings, and testimonials and endorsements.

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6. Crypto and Emerging Financial Technologies

Exams will focus on crypto assets and their associated products and services, and emerging financial technology, such as broker-dealer mobile applications and advisors choosing to provide automated investment advice to their clients.

Focus will be on certain services, including:

automated investment tools,
artificial intelligence, and trading algorithms or platforms, and
the risks associated with the use of emerging technologies and alternative sources of data.

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7. Funds and ETFs

Particular focus will be on:

charging different advisory fees to different share classes of the same fund;
identical strategies offered by the same sponsor through different distribution channels but that charge differing fee structures;
high advisory fees relative to peers; and
high registered investment company fees and expenses, particularly those of registered investment companies with weaker performance relative to their peers.

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