SEC Examination Readiness: Where RIAs Fall Short

An SEC examination can reveal much more than whether a registered investment adviser has the required policies and documents in place.

It can show whether those policies reflect how the business actually operates, whether controls are being tested, and whether the firm can demonstrate how it identifies and addresses compliance risks.

For an RIA, examination readiness starts well before an examination request arrives.

What Readiness Looks Like

A prepared firm should be able to explain how its compliance program operates and support that explanation with documentation. Policies and procedures should reflect the firm's current business.

Testing and monitoring should be performed consistently.

Records should be maintained and accessible.

Disclosures should remain aligned with the firm's activities, and identified issues should have a clear path toward remediation.

RIAs also change over time. New employees join, products are introduced, vendors change, marketing activity expands, and technology becomes part of more areas of the business. Each change can create new compliance considerations.

A program that was appropriate when the firm was smaller may require additional attention as the business becomes more complex. A policy can describe a particular review or control, but the firm still needs to demonstrate that the process is actually taking place. The same applies to disclosures and filings.

What the firm says it does needs to remain consistent with what it is actually doing.

Preparing for the Examination

The practical demands of an examination can make those differences apparent very quickly. The firm may need to produce records, explain its policies, demonstrate testing, document how issues were handled, and coordinate responses across different parts of the organization.

When those materials are maintained as part of the normal compliance process, responding to an examination becomes a matter of organizing existing information rather than reconstructing it.

Areas such as cybersecurity, vendor oversight, marketing, conflicts, and employee compliance can all become relevant depending on the firm's business and the scope of the examination.

AI Is Becoming Part of Exam Readiness

AI adds another layer for firms using technology across their business. Investment tools, client-facing applications, marketing processes, internal workflows, and other uses can introduce questions around supervision, disclosures, data, and oversight.

The SEC has identified AI-related practices as an examination consideration, including whether firms' representations about AI are accurate and whether appropriate policies and procedures are in place to oversee its use.

For firms using AI, examination readiness involves understanding where the technology is being used and how it fits into the firm's existing controls. A firm may have policies covering technology generally, but those policies need to account for the way AI is actually being used.

As AI becomes more embedded in RIA operations, that alignment will become an increasingly important part of examination readiness.

Assessing Readiness

A useful readiness assessment can look across the major components of an RIA's compliance program, including policies and procedures, testing and monitoring, books and records, Form ADV and disclosures, marketing, conflicts, employee compliance, vendor oversight, cybersecurity, AI governance, regulatory filings, documentation, and remediation.

The important consideration is how well these areas work together. A firm may have policies covering each requirement while still having gaps in testing, documentation, ownership, or follow-through.

For executives and CCOs, it is worth considering how the firm would respond if an examination request arrived tomorrow. Could it quickly locate the information requested? Could it demonstrate that its controls were operating as intended? Could it explain how previous issues were identified and addressed? Could it show that its disclosures and policies still reflect the business today?

NextReg works with firms as they navigate those changes, helping them evaluate and strengthen the compliance infrastructure supporting their businesses.

Good examination readiness starts well before an examination begins, with a compliance program that is already operating at the level the business requires.