On November 17, the SEC’s Division of Exams released its Exam Priorities for Fiscal Year 2026. See https://www.sec.gov/files/2026-exam-priorities.pdf. The Division publishes its exam priorities annually to identify issues that SEC exam staff has identified as potential risks and/or expect to focus on during its upcoming exams of regulated entities. The 2026 priorities for investment advisers and investment funds include certain topics that have been exam priorities in the past (with some change in emphasis or scope, reflecting the views of new SEC leadership), as well as topics relating to upcoming regulatory changes and topics that respond to significant developments in the asset management industry and markets and to evolving technologies.
A summary of the key 2026 Exam Priorities for investment advisers and investment funds is set forth below. This summary: highlights changes from prior years’ priorities; discusses the implications of these priorities for investment advisers and investment funds; and outlines the steps that investment advisers and investment funds can take to enhance their compliance functions, manage regulatory risks, and prepare for an SEC exam.
Fiduciary Standards of Conduct
- Investment advisers’ adherence to their fiduciary duties of care and loyalty is a recurring SEC exam priority. As with past years, the 2026 Exam Priorities’ discussion of fiduciary duties emphasize conflicts of interest, best execution, and the consistency of investments with clients’/funds’ investment objectives, liquidity needs, and risk tolerances. Similar to last year’s priorities, the 2026 Exam Priorities identify specific fiduciary considerations for investment advisers that manage private funds, private credit, and investments in other alternative assets. One change from prior years is that the 2026 Exam Priorities states that when assessing advisers’ adherence to fiduciary duties, the SEC staff will examine “advisers’ consideration of various factors associated with their investment advice” including “investment objectives” and any “special or unusual” characteristics of their investment advice. Although it is open to interpretation what this new assessment is intended to cover, it could indicate, among other things, that exams will scrutinize whether investment advisers’ consideration of ESG factors in their investment decisions is consistent with their fiduciary obligations.
- To help ensure that they meet their fiduciary duties to clients, investment advisers should assess their structures and business activities for any characteristic that could create or appear to create a conflict of interest or differing incentives with clients, and confirm that they make adequate disclosure and implement reasonably designed policies and procedures related to such characteristics. Investment advisers should also confirm that they have adequate policies and processes designed to ensure that investments are consistent with a client’s or fund’s objectives and adjust as appropriate to changing market conditions.
Increased Focus on Retailization
- The 2026 Exam Priorities include multiple references to increased investments in alternative assets and private companies by retail funds and investors. See statements regarding fiduciary obligations for investment advisers with “aspects of their business that serve retail investors”; “advisers to private funds that are also advising . . . newly registered funds”; and closed-end registered investment companies (RICs) that use complex strategies and/or have significant holdings of less liquid investments. The specific emphasis on retailization is new from an exam priority standpoint, and reflects the increased growth of retail funds investing in alternative assets that occurred in 2025 and is likely to continue in future years.
- Investment advisers that manage both private funds and RICs that have similar investment strategies should ensure they have robust policies and practices to manage allocation of investments between such funds and potential conflicts of interest that can arise in such circumstances. In addition, investment advisers that have historically managed private funds and begin also managing RICs investing in alternative assets may need to enhance their valuation policies, processes, and capabilities so they are able to make valuation determinations more frequently and with greater accuracy, which is necessitated by the manner in which these RICs are offered and the periodic investor liquidity they provide.
Effectiveness of Compliance Programs
- Maintaining an effective compliance program is crucial for investment advisers, and the effectiveness of such programs is a common priority for exams of registered investment advisers. As with past years, the 2026 Exam Priorities specifically reference compliance programs related to marketing, valuation, portfolio management, disclosure, and custody. Similar to the 2026 Exam Priorities, the current SEC’s Enforcement priorities with respect to investment advisers (as stated by SEC leadership and as apparent from the actions it has brought), have focused on these core obligations for registered investment advisers as well as fiduciary duties and conflicts of interest.
- To facilitate an effective compliance program, an investment adviser should tailor its policies and procedures to its particular operations and potential conflicts of interest, and revise them as appropriate based on changes in operations. Moreover, investment advisers need to conduct appropriate monitoring and employee training to confirm that their policies and procedures are implemented and enforced. Finally, registered investment advisers should ensure that their annual reviews of their compliance program are robust and effectively documented because SEC staff will typically analyze their annual compliance reviews during an exam.
- The 2026 Exam Priorities specifically mention periodic beneficial ownership and other reporting obligations – such as Schedules 13D and 13G, Form 13F, and Form N-PX – for investment advisers with “activist engagement practices.” The references to “activist investors” and Schedules 13D and 13G were not included in prior years’ exam priorities. Under previous leadership, the SEC instituted enforcement actions against investment advisers (and other entities) for alleged failures related to these filings. Thus, investment advisers should ensure they have reasonably designed policies, processes, and resources to make timely and accurate filings.
Mergers and Acquisitions of Investment Advisers and Funds
- The 2026 Exam Priorities explicitly reference mergers, acquisitions, and combinations of investment advisers and of investment funds. Investment advisers and funds that are contemplating or have recently completed a merger, acquisition, or consolidation, should ensure that early and sufficient consideration is paid to resolving operational and compliance issues promptly and whether additional measures to address resulting increased risk profiles are necessary.
Compliance with Upcoming Rule Changes
- The 2026 Exam Priorities identify two amended rules that are relevant to certain investment advisers and investment funds and have upcoming compliance dates. Investment advisers and funds that are or will be subject to these rules should update their policies, procedures, and practices to comply with these obligations, and be prepared for SEC staff to assess them during an exam.
- Regulation S-P: In the summer of 2024, the SEC adopted amendments to Regulation S-P, which addresses protection of financial privacy for natural persons invested in a fund and natural person investment advisory clients. The amendments impose several additional requirements on investment advisers and funds subject to Regulation S-P, including requirements related to providing timely notice of breaches involving investor information, diligence of third-party vendors’ privacy practices, and record-keeping. The compliance date for these Regulation S-P amendments is rapidly approaching: for larger entities (i.e., investment advisers with at least $1.5 billion in AUM and investment companies with at least $1 billion in net assets) the compliance date is December 3, 2025; for smaller entities, the compliance date is June 3, 2026. Investment advisers who have natural person clients or natural person investors in their funds should ensure that they implement policies and procedures regarding these requirements by the relevant compliance date, and take measures to periodically monitor and test their newly implemented processes.
- Names Rule: Amendments to the “Names Rule” (Rule 35d-1 under the Investment Company Act of 1940) require certain funds whose names suggest a particular investing focus to adopt a policy to invest at least 80% of their value in assets consistent with that focus, and update names-related disclosure and reporting requirements. The compliance date for existing large registered funds (funds with net assets of more than $1 billion) is June 11, 2026, and for smaller existing registered funds the compliance deadline is December 11, 2026. Registered funds that will be subject to the amended Names Rule should begin taking measures now to address these additional obligations.
Artificial Intelligence
- The 2026 Exam Priorities identify investment advisers’ use of AI and other emerging technologies as an area of focus, which reflects the significant increased adoption of AI in the asset management sector. Specifically, the SEC exam staff expects to review the accuracy of investment advisers’ and funds’ disclosures regarding their use of AI and AI capabilities, and to assess whether they have implemented adequate policies and procedures to monitor and supervise their use of AI for both the investment process and for operational and compliance-related tasks. Accordingly, investment advisers and investment funds need written policies, procedures, or guidance that address the acceptable uses of AI and provide for appropriate human oversight. Investment advisers and funds also must: adequately monitor their use of AI; periodically train their employees on the appropriate use of AI; and review their disclosures concerning their AI capabilities and AI-related risks.
Cybersecurity, Information Technology, and Operational Resilience
- Cybersecurity has been a perennial exam priority for multiple years. While there is not a specific regulation concerning cybersecurity for investment advisers or investment funds, it is relevant to numerous regulatory considerations, including fiduciary duties, compliance policies and procedures, and disclosure obligations, as well as Regulation S-P and Form PF current reports for certain types of these entities. Cybersecurity risks and practices evolve rapidly; investment advisers and investment funds need to dedicate sufficient personnel and resources to cybersecurity, and to actively monitor for new risks and adjust their processes as appropriate to manage these risks and meet applicable regulatory obligations. Investment advisers and investment funds should ensure they have robust policies, procedures, and practices pertaining to IT governance practices, data loss prevention, and responses to and recovery from cyber incidents, among other topics, and to address new cybersecurity risks such as those associated with AI and increasingly sophisticated ransomware and malware attacks.
The SEC’s 2026 Exam Priorities for investment advisers and investment funds include a combination of traditional topics, and risks that are emerging as a result of market, technological, and regulatory developments. While no list of topics is exhaustive, as part of a robust and proactive compliance program, investment advisers and investment funds should review their policies, procedures, and practices related to these topics in light of their specific activities and organizations and consider making enhancements where relevant. To discuss preparation for an SEC exam or regulatory compliance considerations generally, please reach out to any of the authors listed here or any member of the Freshfields team.
