The US Securities and Exchange Commission (SEC) recently released its priorities for 2025. As in recent years, the SEC is focusing on fiduciary duties and the development of compliance programs as well as emerging risk areas such as cybersecurity and artificial intelligence (AI). This alert details the key areas of focus for investment advisers.

1. Fiduciary Duties Standards of Conduct

The Investment Advisers Act of 1940 (Advisers Act) established that all investment advisers owe their clients the duties of care and loyalty. In 2025, the SEC will focus on whether investment advice to clients satisfies an investment adviser’s fiduciary obligations, particularly in relation to (1) high-cost products, (2) unconventional investments, (3) illiquid assets, (4) assets that are difficult to value, (5) assets that are sensitive to heightened interest rates and market conditions, and (6) conflicts of interests.

For investment advisers who are dual registrants or affiliated with broker-dealers, the SEC will focus on reviewing (1) whether investment advice is suitable for a client’s advisory accounts, (2) disclosures regarding recommendations, (3) account selection practices, and (4) disclosures regarding conflicts of interests.

2. Effectiveness of Advisers Compliance Programs

The Compliance Rule, Rule 206(4)-7, under the Advisers Act requires investment advisers to (1) implement written policies reasonably designed to prevent violations of the Advisers Act, (2) designate a Chief Compliance Officer, and (3) annually review such policies for adequacy and effectiveness.

In 2025, the SEC will focus on a variety of topics related to the Compliance Rule, including marketing, valuation, trading, investment management, disclosure, filings, and custody, as well as the effectiveness of annual reviews.

Among its top priorities is evaluating whether compliance policies and procedures are reasonably designed to prevent conflicts of interest. Such examination may include a focus on (1) fiduciary obligations related to outsourcing investment selection and management, (2) alternative sources of revenue or benefits received by advisers, and (3) fee calculations and disclosure.

Review under the Compliance Rule is fact-specific, meaning it will vary depending on each adviser’s practices and products. For example, advisers who utilize AI for management, trading, marketing, and compliance will be evaluated to determine the effectiveness of compliance programs related to the use of AI. The SEC may also focus more on advisers with clients that invest in difficult-to-value assets.

3. Examinations of Private Fund Advisers

The SEC will continue to focus on advisers to private funds, which constitute a significant portion of SEC-registered advisers. Specifically, the SEC will prioritize reviewing:

1. Disclosures to determine whether they are consistent with actual practices.
2. Fiduciary duties during volatile markets.
3. Exposure to interest rate fluctuations.
4. Calculations and allocations of fees and expenses.
5. Disclosures related to conflicts of interests and investment risks.
6. Compliance with recently adopted or amended SEC rules, such as Form PF (previously discussed here).

4. Never Examined Advisers, Recently Registered Advisers, and Advisers Not Recently Examined

Finally, the SEC will continue to prioritize recently registered advisers, advisers not examined recently, and advisers who have never been examined.

Key Takeaways

Investment advisers can expect SEC examinations in 2025 to focus heavily on fiduciary duties, compliance programs, and conflicts of interest. As such, advisers should review their policies and procedures related to fiduciary duties and conflicts of interest as well as evaluating the effectiveness of their compliance programs.