SEC Risk Alert Highlights Common Deficiencies In Investment Adviser Annual Compliance Reviews

On September 14, 2026, the staff of the Division of Examinations (the Staff) of the Securities and Exchange Commission (the SEC) issued a Risk Alert highlighting observations from recent examinations regarding registered investment advisers’ compliance with the annual review requirement under Rule 206(4)-7 (the Compliance Rule) of the Investment Advisers Act of 1940 (the Advisers Act). The Risk Alert identifies recurring deficiencies in how advisers conduct, document and follow up on annual reviews of their compliance policies and procedures — a foundational obligation for all SEC-registered investment advisers.

The Risk Alert is particularly significant because the annual compliance review is one of the first items examination staff typically requests, making it a key focal point of SEC examinations. Below, we summarize the Staff’s key observations and offer practical takeaways for advisers.

Key Observations from the Staff

The Risk Alert identifies deficiencies in six principal areas:

1. Timeliness of Annual Reviews. The Staff observed registered investment advisers that failed to conduct annual reviews on a timely basis, including advisers that had gaps in their review cycles or extended review intervals beyond 12 months due to operational disruptions or Chief Compliance Officer (CCO) departures, even when the advisers had received prior deficiency letters flagging untimely reviews. The Staff also noted that compliance training or attestations of receiving and reviewing the compliance policies are not a substitute for the required annual review.
2. Incomplete Policies and Procedures for Conducting Reviews. The Staff observed advisers whose compliance policies required annual reviews but that had not adopted — or had adopted only incomplete — procedures guiding personnel on how to assess whether policies and procedures were adequate and effectively implemented. For example, some advisers lacked documented procedures for testing and validation, evaluation criteria for those tests, and recordkeeping standards for the review process.
3. Reviews Inconsistent with Written Procedures. Even among advisers that conducted timely reviews, the Staff found instances where the reviews did not follow the advisers’ own written procedures. Common issues included failure to adhere to defined review periods or scopes, failure to use specified workpapers or documentation, and reviews that assessed the effectiveness of outdated or superseded versions of policies and procedures.
4. Misalignment Between Policies and Actual Practices. The Staff observed advisers that failed to identify, during their annual reviews, that their policies and procedures did not fully address or were not aligned with their actual business practices, due to evolving business practices or specific risk areas that are pivotal to the business. Notable examples included:
   • Fee and expense billing practices that deviated from disclosures in advisory agreements and Form ADV.
   • Proxy voting policies that stated the adviser would vote proxies in clients’ best economic interests, but the adviser had disclosed to clients that it did not vote proxies and did not do so in practice.
   • Custody policies that omitted steps to identify accounts subject to surprise examination requirements.
   • Policies delegating services or operations to third parties without procedures for overseeing those delegated responsibilities.
5. Failure to Maintain Documentation. The Staff observed that some advisers created documentation during their annual reviews — such as testing records and corrective action recommendations — but failed to maintain that documentation in their books and records, as required by Advisers Act Rule 204-2(a)(17)(ii). In some cases, advisers adopted policies requiring written annual review reports covering specific topics but never prepared the reports. Other advisers adopted policies requiring specific documentation formats but only partially completed them.
6. Failure to Implement Corrective Actions. The Staff found advisers that did not take corrective action after their own annual reviews recommended changes. In some cases, advisers indicated in their annual review reports that corrective actions had already been implemented, but examination staff found that the identified issues persisted. Further, some advisers failed to take corrective interim action in between annual reviews when necessary, such as after an enforcement action or receipt of deficiencies at the conclusion of an SEC examination.

Key Takeaways for Advisers

The Risk Alert serves as an important reminder that the annual compliance review is not a check-the-box exercise — it is a substantive obligation that the SEC’s examination staff scrutinizes closely. Based on the Staff’s observations, advisers should consider the following:

1. Maintain a Consistent Annual Review Cadence.Reviews should be conducted at least annually without gaps. Operational disruptions, personnel changes and CCO transitions are not valid reasons for deferring or skipping a review.
2. Consider Adopting Detailed Procedures for Conducting the Review.It is not enough to have a policy requiring an annual review. The Staff suggested that registered investment advisers should have procedures that specify the testing and validation methodology, evaluation criteria, the review period and scope of the review, and the documentation to be created and maintained, but advisers should keep in mind that the SEC will evaluate their compliance with procedures as discussed below when deciding whether to increase specificity.
3. Follow Your Own Procedures.Reviews must be conducted consistently with the adviser’s written procedures. The Staff will compare the review process and documentation against the adviser’s own policies.
4. Align Policies with Actual Practices.The annual review should assess whether the adviser’s written policies accurately reflect its current business activities, evolving and material risks, fee practices, service offerings and regulatory obligations. Advisers should establish a process for the CCO to be informed of business and operational changes that may affect the scope of the review.
5. Maintain Complete Books and Records.All documentation generated during the annual review — including testing records, workpapers, findings and corrective action recommendations — must be maintained in the adviser’s books and records, especially if specifically required by Rule 204-2 under the Advisers Act. Written annual review reports should be comprehensive and address all topics required by the adviser’s own policies.
6. Implement and Track Corrective Actions.When an annual review, SEC exam or business change identifies deficiencies or recommends changes, advisers should implement those changes promptly and maintain records demonstrating that corrective actions were completed. Stating that issues have been resolved without actually resolving them is a significant examination risk.

Annual compliance reviews remain a recurring examination focus for the SEC because they provide Staff with an efficient lens into the overall health of an adviser’s compliance infrastructure. When reviews are untimely, incomplete, or disconnected from actual business practices, the Staff views those deficiencies as indicators of broader compliance risk. Advisers are well served to evaluate their current practices against the Staff’s observations and make any necessary enhancements. Akin’s investment management team is available to assist clients in reviewing and strengthening their annual compliance review processes.