SEC’s 2027 Exam Priorities: Key Topics for Asset Managers

The SEC’s Division of Examinations (“EXAMS”) issued its 2027 examination priorities, which reinforce fiduciary obligations and other familiar themes, while sharpening the focus on recent trends in the asset management industry, including the continued expansion of complex and illiquid investments, reliance on proxy advisory firms, and the use of emerging technologies. For investment advisers and registered investment companies, EXAMS remains focused on whether investment recommendations, disclosures and compliance practices reflect the risks and operations of their actual businesses. Economic conflicts, private fund operations, valuation processes and the effectiveness of compliance controls also remain at the center of the examination agenda for asset managers.

Other priority areas for review in 2027 exams include private credit and other alternative investments, higher-risk exchange-traded products, advisers with recent growth through strategic transactions and/or geographic expansion, shareholder engagement and activist-related filing obligations, and the use of what the executive branch calls Super Intelligence (“SI”)¹, automated investment tools, and heightened cybersecurity risk. The 2027 priorities also specifically describe the steps EXAMS has taken to integrate SI into its own examinations and risk assessment by deploying SI-supported tools to strengthen analysis, improve workflow efficiency, and detect patterns and risks across complex datasets.

Key Takeaways: 

• Conflicts and suitability remain at the core. EXAMS will assess whether financial incentives compromise impartial advice and whether recommendations account for clients’ objectives, risk tolerance, liquidity needs, investment horizons and costs, including exit costs.
• Complex products and illiquid investments continue to warrant attention. Building on similar priorities in recent years, the 2027 priorities identify a variety of complex and illiquid products that are or remain a priority for EXAMS. For registered funds holding complex products and less liquid investments, EXAMS will continue to focus on associated issues regarding valuation, redemptions and disclosure of conflicts and risks.
• Compliance must keep pace with business practices, including reliance on proxy advisers. Advisers that have grown through acquisitions or other means, operate dispersed branches, rely on proxy advisers, or engage in activism should expect targeted scrutiny of their oversight and controls.
• Use of emerging technology should align with policies and disclosures. Reviews of SI, automated advice, and trading tools will assess the accuracy of representations, the consistency of operations and controls with disclosures, and the alignment of algorithmic recommendations with investor profiles or stated strategies.

Investment Advisers

Economic conflicts and investment recommendations. EXAMS continues to focus on investment advisers’ core fiduciary obligations – the provision of suitable advice and disclosure of material conflicts of interest. As part of this assessment, EXAMS considers whether advice on products and strategies is consistent with client profiles, investment objectives, risk tolerance and other mandates. Relevant factors identified in this year’s priorities include liquidity, risk and potential rewards, volatility, projected performance across different market and economic conditions, time horizons, and costs, including the cost of exiting an investment. In 2027, EXAMS will also focus specifically on economic conflicts of interest (i.e., whether advisers’ financial conflicts affect the impartiality of their advice), including fee rebates, fee and expense calculations, cash management, quid pro quo arrangements, deposits and withdrawals.

Complex, unusual, and illiquid products. As it has in recent years, EXAMS will prioritize advisers recommending investments that are difficult to trade, have unusual features, or are illiquid. Specifically identified products in the 2027 priorities span alternative investments and complex or higher-risk strategies, including:

• Loans provided by private funds or BDCs and investments in private companies through SPVs;
• ETFs based on less liquid assets, option-based funds, inverse ETFs and single-stock ETFs; and
• Zero-days-to-expiration options.

Advisers to these and similar products should be prepared to explain not only a product’s risks, but also why its liquidity, structure, and potential performance are appropriate for the particular client.

Emerging Technologies and Automated Investment Tools

As expected, the priorities identify information security and emerging technology as a key risk area for focus in 2027 exams. Specifically, EXAMS highlighted firms’ increasing use of SI in core business operations and systems, including investment analysis, customer management, and code development. EXAMS will review policies and procedures for monitoring SI, including in fraud prevention and detection, back-office operations, compliance with anti-money laundering (“AML”) and Regulation Best Interest (“Reg BI”) obligations, and trading functions. EXAMS will also focus on firms’ compliance with relevant rules governing their assessment of, and preparation for, SI-related cyber threats, including SI-generated phishing and synthetic or deepfake voice and video used for social engineering, as firms increasingly integrate SI into core operations.

The priorities also address automated investment tools, trading algorithms and platforms, and risks associated with emerging technologies and alternative data sources. Firms providing automated investment advisory services, recommendations and related tools should expect assessments of whether:

• Representations are fair and accurate;
• Operations and controls are consistent with disclosures to investors; and
• Algorithms produce advice or recommendations consistent with investors’ investment profiles or stated strategies.

Firms should consider reviewing technology-related disclosures alongside the tools actually deployed and the controls used to oversee them. Testing should address both the accuracy of descriptions of those tools and the investment recommendations they generate.

Proxy Advice, Adviser Growth, and Activist Engagement

Reliance on proxy advisory firms. As a new focus that follows public statements by SEC staff, EXAMS will review how advisers evaluate proxy advisory firms’ recommendations, examine the bases for those recommendations, identify potential conflicts of interest, and determine whether reliance on the recommendations satisfies applicable legal obligations. Advisers should consider whether their oversight records demonstrate substantive evaluation rather than automatic reliance.

Growth and geographically dispersed operations. Advisers that have grown through mergers, acquisitions or other means, or operate multiple geographically dispersed branch offices, are identified as priorities. EXAMS will assess whether advisers have identified new conflicts of interest and adapted compliance programs to reflect these changes and mitigate these conflicts. Firms should consider whether integration and branch-oversight processes adequately capture changes in business activities and incentives.

Activist engagement and reporting. For advisers with activist engagement practices, EXAMS will focus on timely and accurate filings on Schedules 13D and 13G and Forms 13F, 13H, 3, 4, 5 and N-PX, as applicable. In addition to reviewing responsibility for monitoring filing triggers, coordinating relevant information and checking submissions for completeness and accuracy, advisers should also review their practices against SEC staff Regulation 13D-G FAQ guidance regarding shareholder engagement and a recent SEC report of investigation under Section 21(a) of the Securities Exchange Act of 1934, which reflects the SEC’s views regarding coordinated activities among institutional investors for purposes of beneficial ownership reporting and proxy solicitation.

Private Fund Advisers

For private fund advisers, EXAMS will assess whether investment-related risk disclosures are consistent with fiduciary standards and whether compliance policies, procedures, and controls address risks at both the fund and investment levels. Specific areas of focus for 2027 exams include:

• Disclosures concerning particular investments and allocations;
• Use of debt and fund-level lines of credit;
• Use of affiliated service providers; and
• Accuracy of fee and expense calculations at both the fund and investment levels.

As a practical matter, private fund advisers should consider testing whether disclosures and controls capture how these arrangements operate in practice, including whether fee and expense calculations accurately reflect the relevant fund and investment arrangements.

Investment Companies

For registered funds, EXAMS will continue to focus on holdings of complex products and less liquid or illiquid investments, including private credit. Associated examination topics include valuation, redemptions, and disclosures of conflicts of interest and risks. Aligned with this focus, the Chief Accountant and the Director of the Division of Investment Management recently issued a Statement on the Valuation of Private Assets.

Other identified areas include novel or complex investment strategies and leverage vulnerabilities. The priorities identify BDCs and inverse and leveraged ETFs in this context. EXAMS will also review registered funds operating in reliance on exemptive orders, including implementation of, and compliance with, those orders.

Funds and their advisers should consider whether valuation practices, redemption arrangements and investor disclosures appropriately reflect portfolio liquidity and leverage risks and whether applicable exemptive order conditions are implemented by appropriate policies and incorporated into operational controls.

Preparing for Examination

Asset managers should use these focus areas to target their examination readiness efforts. As always, firms should be able to demonstrate that their disclosures and controls reflect the risks of their investments, business practices and client relationships. To prepare for newer focus areas, practical steps for firms include reviewing financial incentives that introduce material conflicts, validating private fund fees and expenses are appropriately calculated and adequately disclosed, assessing proxy adviser oversight and whether shareholder engagement activities could trigger additional or different filing obligations, assessing governance and monitoring of SI and automated tools, and confirming that compliance programs have been amended to reflect recent acquisitions, branch operations and technology use.

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