SEC Compliance Programs

Investment advisers registered with the Securities and Exchange Commission operate under a compliance framework anchored by Rule 206(4)-7 under the Investment Advisers Act of 1940 — the compliance program rule. The rule requires each registered investment adviser to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act, designate a Chief Compliance Officer responsible for administering those policies and procedures, and conduct an annual review of the adequacy of the compliance program and the effectiveness of its implementation. The annual review is not a formality — SEC examiners review annual review documentation as a primary indicator of whether a firm's compliance program is functioning or simply existing on paper.

The SEC marketing rule — Rule 206(4)-1 — substantially replaced the advertising rule in November 2022 and has been one of the most active areas of SEC examination scrutiny since. The rule governs all advertisements and testimonials, including performance advertising, third-party ratings, endorsements, and hypothetical performance presentations. Compliance requires not just updated policies but substantiation procedures, disclosure workflows, and training programs for personnel involved in marketing and investor communications.

The custody rule — Rule 206(4)-2 — remains one of the most frequently cited areas of deficiency in SEC investment adviser examinations. Advisers with custody of client assets face significant compliance obligations, including surprise examination requirements, qualified custodian standards, and account statement delivery obligations. Inadvertent custody — arising from limited power of attorney provisions, fee deduction arrangements, or client directed standing letters of instruction — is a particularly common source of non-compliance.

For dual registrants — firms registered as both broker-dealers and investment advisers — the compliance landscape adds the obligation to satisfy Regulation Best Interest for broker-dealer activities while maintaining the fiduciary standard for advisory activities. Managing these parallel obligations requires careful documentation of when acting in each capacity and ensuring Form CRS accurately reflects the nature and scope of services offered.