Most Common SEC Exam Mistakes & Deficiencies (And How Advisers Can Avoid Them)

Regulatory examinations continue to identify recurring compliance deficiencies across SEC-registered investment advisers and broker-dealers. While the specific focus areas evolve alongside rulemaking and enforcement priorities, the underlying causes of deficiencies remain consistent: incomplete implementation of policies, insufficient documentation, and gaps between written procedures and actual practice.

At Compliance Risk Concepts, we continue to see a concentration of exam findings in several core areas. Understanding where firms most commonly fall short, and how to address these issues proactively, can materially reduce regulatory risk and improve examination outcomes.

1. Policies and Procedures That Do Not Reflect Actual Practices

A frequent examination finding arises when a firm’s written policies and procedures describe processes that are either outdated or not followed in practice. Regulators increasingly compare written supervisory procedures and compliance manuals against operational reality.

Common issues include:

• Policies copied from templates without firm-specific customization
• Procedures that reference controls or reviews that are not performed
• Failure to update policies following regulatory changes or business evolution
• Inappropriate determination of rule applicability

How to avoid it:

Firms should treat compliance documentation as a living framework. Periodic testing, operational walkthroughs, and annual reviews under Rule 206(4)-7 should confirm that written procedures accurately reflect how the firm operates today.

2. Inadequate Documentation of Compliance Activities

Even where firms perform required reviews or oversight, insufficient documentation remains a leading deficiency. From the regulator’s perspective, if an activity cannot be evidenced, it effectively did not occur.

Common gaps include:

• Incomplete annual review documentation
• Lack of evidence supporting marketing review or approvals
• Limited documentation of best execution reviews or vendor oversight

How to avoid it:

Compliance activities should produce consistent, retained records demonstrating scope, methodology, and conclusions. Firms should ensure recordkeeping aligns with Rule 204-2 requirements and supports examination readiness.

3. Marketing Rule Compliance and Substantiation Issues

Since the adoption of Rule 206(4)-1, examinations have focused heavily on marketing materials, performance presentations, and substantiation of claims.

Common deficiencies include:

• Unsupported statements regarding expertise or outcomes
• Improper presentation of performance or hypothetical results.
• Missing required disclosures or insufficient oversight of third-party content

How to avoid it:

Firms should maintain substantiation files for all material claims, establish pre-use review processes, and periodically review legacy marketing content to ensure continued compliance.

4. Cybersecurity and Regulation S-P Implementation Gaps

Regulators continue to evaluate firms’ safeguards for client information, incident response preparedness, and vendor oversight. Deficiencies often arise not from a lack of policies, but from incomplete implementation.

Common issues include:

• Incident response plans that are not tested
• Incomplete vendor due diligence or monitoring
• Lack of clear escalation procedures for potential incidents

How to avoid it:

Firms should conduct tabletop testing of incident response procedures, maintain vendor risk assessments, and ensure employees understand escalation protocols. Implementation (not just policy adoption) remains the regulatory focus.

5. Conflicts of Interest and Disclosure Inconsistencies

Examiners frequently identify situations where conflicts exist but disclosures are incomplete, inconsistent, or not updated across documents.

Examples include:

• Revenue-sharing arrangements not fully disclosed
• Inconsistencies between Form ADV, client agreements, and marketing materials
• Inadequate disclosure of allocation or valuation conflicts

How to avoid it:

Firms should periodically reconcile disclosures across all client-facing documents and confirm that new business practices are evaluated through a conflicts-focused lens before implementation.

6. Weak Testing and Ongoing Monitoring Programs

Many firms rely heavily on annual reviews without implementing ongoing testing or risk-based monitoring. Examiners increasingly expect firms to demonstrate continuous oversight rather than periodic review alone.

Common deficiencies include:

• Testing programs not tied to risk assessments
• Reviews performed without documented methodology
• Lack of follow-up on identified issues

How to avoid it:

A structured compliance testing program aligned with the firm’s risk profile helps demonstrate proactive oversight and supports defensible compliance outcomes.

A Proactive Approach to Examination Readiness

SEC examinations are not solely designed to identify technical violations; they evaluate whether a firm’s compliance program is reasonably designed and effectively implemented. Firms that align policies, operations, documentation, and testing are consistently better positioned during examinations.

At Compliance Risk Concepts, we encourage firms to view examination preparation as an ongoing process rather than an event-driven exercise. Addressing common deficiencies before an examination occurs reduces regulatory risk, improves operational consistency, and strengthens overall governance.

For a more in-depth look at the SEC’s exam focus areas, download our 2026 Regulatory Outlook.