Regulatory Considerations for Investment Advisers: Compliance Reviews, Valuation, and Proposed Rulemaking

Recently, the SEC has issued guidance relevant to registered advisers and exempt reporting advisers, highlighting a focus on compliance, disclosure, and streamlined regulations. The Division of Examinations issued a Risk Alert highlighting common deficiencies in investment advisers’ annual compliance reviews. The Division of Investment Management issued a Statement on Fair Value Measurement and Disclosure Considerations for Private Assets. In recent months, the SEC has proposed rescinding the pay-to-play rule. The SEC is also considering rule changes to expand the definition of accredited investor and the ability of registered advisers to receive performance-based fees. In addition, the enforcement landscape under Chairman Atkins continues to evolve.

Division of Examinations Risk Alert: Annual compliance review observations

In September 2026, the SEC’s Division of Examinations (the Examinations Division) issued a Risk Alert¹ summarizing examination observations regarding investment adviser annual compliance reviews under Rule 206(4)-7 (the Compliance Rule) of the Investment Advisers Act of 1940 (the Advisers Act). The Risk Alert highlights recurring deficiencies seen by examination staff and provides a roadmap for advisers seeking to strengthen their compliance programs ahead of future examinations.

SEC registered investment advisers are required to adopt and implement written compliance policies and procedures under the Compliance Rule. Registered advisers are required to review compliance policies and procedures at least annually to assess both their adequacy and the effectiveness of their implementation. The annual review should address any compliance matters that arose during the prior year, changes in the adviser’s business activities, and changes in the Advisers Act or applicable regulations that might suggest the need for policy revisions. Advisers are also expected to consider the need for more frequent reviews in response to significant compliance events, changes in business arrangements, or regulatory developments.

The Examination Division’s staff identified six key areas of concern across recent examinations:

• Timeliness of annual reviews – Staff observed that advisers failed to conduct annual reviews on a timely basis, finding: gaps in annual reviews; reviews covering periods greater than 12 months; substitution of compliance training or annual personnel attestations for the substantive annual review requirement; and failure to take corrective action after receiving prior deficiency letters regarding untimely or missed reviews.
• Completeness of policies and procedures – Advisers had compliance policies requiring annual reviews but lacked adequate procedures for conducting those assessments.
• Consistency of reviews with written procedures – Advisers conducted timely annual reviews but not in a manner consistent with their own written procedures.
• Alignment of policies with actual practices – Specifically, staff found the following inconsistencies:
  • Fee and expense billing deviations: deviation from policies and client disclosures (e.g., use of different fee calculation methodologies, failure to prorate fees for large intra-billing period deposits, failure to apply breakpoints, and failure to issue refunds for terminated accounts).
  • Proxy voting inconsistencies: deviation from policies stating that the adviser would vote proxies in clients’ best interests. In practice, the adviser did not vote proxies at all.
  • Custody policy gaps: omission of steps to ensure accounts subject to custody were identified for surprise examinations by independent public accountants;.
  • Outdated marketing and regulatory filing procedures: failure to update policies to reflect changes to the Advisers Act, including the marketing rule and Form CRS requirements.
  • Insufficient oversight of outsourced services: failure to identify how the adviser should oversee responsibilities delegated to third parties.
  • Unaddressed compliance incidents: failure to address or record instances of non-compliance identified during the review period in annual reviews.
• Maintenance of documentation – Staff observed advisers who created documentation during annual reviews but failed to maintain it in their books and records.
• Corrective actions – Examination staff found that advisers did not take corrective action after annual reviews recommended changes. In certain instances, advisers represented that corrective actions had already been taken, although they had not.

Division of Investment Management Statement on Fair Value Measurement and Disclosure Considerations for Private Assets

On September 28, 2026, the Division of Investment Management issued a Statement related to valuation and disclosure.² The Statement provides that SEC staff has observed significant growth in private credit, which inherently requires unobservable inputs to determine valuation. The Division of Investment Management reminds advisers that fair value determinations, including identifying the quality of information presented, are the responsibility of the investment manager. Valuation should include not only the transaction price but also robust calibration practices, including information related to comparable transactions, public market equivalents, secondary market indications, or relevant credit indices, and should be reassessed as conditions evolve. 

In addition, best practices under Financial Account Standards Board rules and the Advisers Act require “disclosure that may be material for investors to understand the overall risk profile of private credit portfolios and how that profile may change over time,” including clear disclosure about non-accruals and paid-in-kind (PIK)interest. The Investment Management staff reiterates that the common thread is “transparency and material disclosure.”

Developing rulemaking: Repeal of pay-to-play rule; expansion of accredited investor definition; performance-based compensation; framework for custody of crypto assets

In September 2026, the SEC proposed rescinding Rule 206(4)-5, the so-called “pay-to-play” rule under the Advisers Act.³ Rule 206(4)-5 was enacted with the intention of deterring fraud by prohibiting investment advisers from providing compensated investment advisory services to a government client for two years after making a political contribution to certain elected officials or candidates. Comments can be submitted to the SEC until November 9, 2026. Even if the federal rule is rescinded, advisers should be aware that state and local pay-to-play laws may still apply to adviser activity related to political contributions. 

On September 30, 2026, the Division of Investment Management proposed various amendments to the Advisers Act with the goal of expanding access to the private funds to a broader group of investors. These proposals include expanding the ability to registered advisers to receive performance-based compensation from certain types of regulated funds and amendments to Rule 205(a)(1) of the Advisers Act, which prohibits registered advisers from receiving performance fees for clients who are not “qualified clients.”On the same day, the Division of Corporation Finance provided that it would seek to expand the definition of “accredited investor” to include additional categories for natural persons.⁴ On October 1, the SEC proposed new rules and amendments under the Advisers Act and Investment Company Act to modernize the custody rules related to crypto assets.

SEC enforcement actions and trends in 2026

SEC Chair Paul Atkins has signaled a meaningful shift in enforcement philosophy since his role as leader of the Commission. He has spoken publicly about the need for the SEC to move away from the “regulation by enforcement” approach under the previous administration and focus on core areas for investor protection, including fraud, misappropriation of client assets, and material misrepresentations to investors. Since the beginning of this year, enforcement actions related to advisers have focused on fiduciary duties, including misleading advisory agreements,⁵ conflicts of interest,⁶ fee and expense practices that deviate from disclosures, valuation issues affecting client portfolios,⁷ disclosure of conflicts of interest related to referral fees,⁸ and compliance program failures. The SEC published a revised exam handbook, which will provide an updated resource for registrants during SEC examinations.⁹

Key takeaways for advisers

This recent regulatory activity, including the Risk Alert and Statement, serves as a clear signal that the examination staff will carefully review the substance and quality of annual compliance reviews. Advisers should ensure their annual review processes are timely, comprehensive, well-documented, and followed up with concrete corrective actions; otherwise, advisers risk examination deficiencies and potential enforcement referrals. The Risk Alert and Statement and year-to-date enforcement actions show that the SEC continues to focus on core compliance obligations. Fiduciary duty, accurate disclosure, valuation, fair dealing with clients, and robust compliance programs remain critical in the SEC’s enforcement agenda. Advisers should maintain rigorous compliance procedures, conduct thorough annual reviews, and ensure that disclosures accurately reflect actual practices. 

1. Divisions of Examinations Risk Alert: Examinations Observations Regarding Investment Adviser Annual Compliance Review, September 14, 2026, available here.
2. Available here.
3. Statement on Proposal to Rescind “Pay-to-Play” Rule
4. Open Meeting Agenda
5. FamilyWealth Advisers, LLC & FamilyWealth Asset Management, Jan. 20, 2026, , IA-6941 (File No. 3-22580) SEC settled charges with two related RIAs for misleading hedge clauses, permitting assignment without client consent and failure to comply with the custody rule.
6. Ally Invest Advisors Inc. March 23, 2026, IA-6954 (File No. 3-22617) SEC settled charges against registered adviser for failing to disclose material conflicts of interests and inaccurately disclosing intended portfolio  investment strategy; Foundations Investment Advisors, LLC & Bryon E. Rice, Jun 8, 2026, IA-6970 (File No. 3-22647) SEC settled charges against registered adviser and CEO for undisclosed conflicts of interest. The firm also failed to implement compliance policies related to conflicts of interest and annual compliance reviews.
7. Madison Capital Funding LLC, Feb. 25, 2026, IA-6948 (File No. 3-22599) SEC settled charges against formerly registered adviser for selling loans originated by an affiliate to private fund clients without reasonably determining fair market value.
8. Zoe Financial Inc. Sept 28, 2026, IA-7019 (File No. 3-22758) SEC settled charges against registered adviser for breaches of fiduciary duty by registered investment adviser for failing to fully and fairly disclose material facts concerning conflicts of interest to its clients and prospective clients. The adviser failed to disclose its financial incentive to refer clients to third-party investment advisers that used the adviser’s platform, which created a conflict of interest, among other disclosure issues.
9. SEC’s Division of Examinations Announces New Exam Handbook

Client Alert 2026-195