What an SEC Examiner Can Learn in the First 48 Hours of an Examination

An SEC examination can begin revealing weaknesses in an RIA’s compliance program before anyone reviews a single trade. The initial request reaches the CCO, department heads begin gathering records, and questions emerge that nobody expected to be difficult. Which client list is complete? Who holds the agreements for the acquired practice? Does the annual review cover every office? Why does the billing team’s explanation differ from the compliance manual?

For leadership, these may look like the ordinary complications of responding to a substantial document request. Some are. A complex firm will reasonably need time to retrieve records, interpret requests, and coordinate responses. But the opening stage can also expose uncertainty about how the business operates, who oversees it, and whether the firm can substantiate what it says about its compliance program.

There is no universal SEC “48-hour test.” Examination schedules, response deadlines, and the sequence of requests vary. The first two days are useful here as a management exercise: how much could an informed outsider learn from your firm’s initial explanations and the evidence available to support them?

At a growing RIA, the answer may have less to do with the quality of the compliance manual than leadership expects. The opening exchanges can reveal whether the firm understands its own structure, whether its records support consistent explanations, and whether the CCO has access to the people and information needed to respond.

The examiner arrives with a starting point

The examination team does not necessarily begin with a blank slate. In its September 2023 risk alert, the SEC’s Division of Examinations describes a selection and scoping process informed by firm-specific risks, regulatory history, disclosures, and other information. Examination scope varies with the adviser’s business model, risks, and the reason for the review. The accompanying sample request includes organizational information, advisory agreements, compliance reviews, exception records, and information that allows staff to conduct testing. SEC risk alert on examination scoping and document requests

Those materials create opportunities to compare the firm’s description of its business with its actual practices. An organizational chart can identify reporting relationships; interviews can clarify who makes decisions. An agreement can describe a fee arrangement; account records can show how the fee was calculated. A procedure can specify a review; the supporting records can show whether it occurred and what followed.

The practical implication is that preparation should include examining the relationships among records. A document can be accurate on its own while leaving an important question unresolved when read alongside another. A compliance manual may correctly describe the firm’s intended approval process, for example, while a local office’s operating instructions describe a different route.

Leadership should expect reasonable questions about those differences. The firm’s ability to explain them accurately, including their significance and any corrective work, matters more than presenting an artificially seamless account of operations.

Whether the firm can explain the business it operates today

Consider a hypothetical RIA that has completed several acquisitions. Its executive presentation describes an integrated business with centralized supervision. The acquired offices retain some legacy agreements, operate through different systems, and continue to rely on local personnel for certain reviews. None of those facts automatically establishes a compliance failure. They do create a need for a more precise explanation of how central oversight functions.

If the CCO describes one approval process and the branch manager describes another, the firm needs to establish what actually happens. Perhaps the branch follows a permitted variation with an equivalent control. Perhaps integration remains incomplete. Perhaps the central procedure has never been implemented locally. Those possibilities have different implications, and the firm should understand which one applies before trying to explain the arrangement to an examiner.

The Division’s fiscal year 2026 examination priorities specifically discuss the operational and compliance complexities associated with mergers and acquisitions. They also identify compliance program effectiveness, implementation and enforcement of procedures, and changes in business models as areas of attention. SEC fiscal year 2026 examination priorities

For an executive team, this makes the opening business discussion consequential. A firm that has grown substantially should be able to explain how supervision changed with that growth. Adding offices to an organizational chart is straightforward. Establishing who reviews their activity, how exceptions reach the CCO, and what happens when local practices diverge requires more work.

The same issue arises without an acquisition. New services, compensation arrangements, investment offerings, or technology can change the business faster than its compliance procedures evolve. Early questions may expose that gap simply by asking different people to explain the same process.

Whether the records describe the same population

A request for client or account information can uncover another problem: different departments may be working from different definitions of the business. Operations may count households, the billing platform may count fee-paying accounts, and another report may include closed accounts or accounts held for reporting purposes only. Different totals are not necessarily errors. Unexplained differences make it difficult to determine whether the requested information is complete.

Suppose the firm provides an account file that excludes a group of legacy accounts because they remain on an acquired practice’s platform. If the response does not identify that limitation, subsequent records may appear inconsistent. More significantly, the omission may raise an internal question about whether those accounts have also been excluded from ordinary compliance testing.

The appropriate preparation is to understand how a requested population is assembled, what period it covers, and which exclusions are appropriate. Someone should be able to trace the information to its sources and explain material differences among reports. That does not require every system to produce identical figures. It requires enough control over the information to distinguish a legitimate difference from an incomplete response.

This is particularly important when information is manually combined. A spreadsheet prepared for an examination may be a reasonable way to answer a request, but the firm should preserve the underlying records and understand the transformations used to produce it. A reviewer should be able to follow how the final file was assembled without depending entirely on the person who created it.

These are practical preparation measures, rather than a prescribed format for every examination. Their value extends beyond the response itself. If leadership cannot establish which accounts a report includes, it may also have difficulty evaluating the reach of the controls that depend on that report.

Whether compliance has access and authority

The initial response effort can reveal how much of the firm’s compliance program depends on personal relationships. The CCO may know exactly whom to call for a billing extract or a branch review record. That arrangement becomes fragile when the person is unavailable, has left the firm, or disagrees about the priority of the request.

A well-supported CCO should have a reliable route to the information needed to administer the program. If records can be obtained only through repeated appeals to senior management, leadership should examine whether the same obstacle affects routine oversight. An examination can make that obstacle visible because information that normally moves slowly is suddenly needed on a defined timetable.

The SEC staff’s 2020 compliance program risk alert describes instances in which CCOs lacked access to critical compliance information or had limited interaction with senior management. It also discusses insufficient compliance resources. Those observations provide useful context for evaluating whether the CCO’s difficulty responding reflects a temporary workload problem or a more persistent limitation. SEC observations on investment adviser compliance programs

Executive involvement should help resolve those limitations. A COO who establishes departmental ownership and makes resources available can materially improve the response. That involvement is different from routing every substantive answer through leadership or expecting the CCO to explain operational details without assistance from the people responsible for them.

The firm needs accurate participation from the right people. When an answer is uncertain, identifying the appropriate source and returning with a verified explanation is more useful than offering an immediate guess.

Whether completed reviews led to meaningful action

An annual review report can introduce questions that extend well beyond whether the review occurred. If it identifies a significant weakness, the natural next inquiry is what the firm did about it. A notation that management was informed or that a procedure was updated may provide part of the answer. The remaining question is whether the identified concern was addressed in practice.

Imagine that a review found inconsistent approval of advertisements across offices. The response says employees were retrained, and the issue register marks the matter closed. Later records show additional advertisements distributed without approval. The firm needs to understand whether these were isolated departures, whether the revised process failed, or whether the original response never reached all affected offices.

This is the connection between examination readiness and the handling of recurring findings. A firm’s earlier conclusions become more useful when the supporting record explains their scope and limitations. If remediation was implemented but follow-up testing remained outstanding, the record should convey that status accurately. A closure label that overstates the work performed can make the explanation harder.

Leadership should therefore review significant findings with an eye toward the evidence supporting the outcome. The objective is to understand what the firm knew, what it decided, what it changed, and what remained unresolved. That history should be available without reconstructing months of email under examination pressure.

Prepare the response by testing ordinary operations

A useful preparation exercise is to choose one substantive process and ask the firm to explain it using the records it ordinarily maintains. Billing is often a productive starting point because it connects agreements, account setup, system configurations, calculations, reviews, and corrections. Marketing approval or branch supervision can serve the same purpose.

Give a qualified reviewer a defined request covering that process and a reasonable internal deadline. Ask the responsible teams to assemble the response through their usual channels. The exercise should reveal where information resides, who can retrieve it, whether the explanations agree, and what requires additional investigation. It should not begin with a specially curated folder that removes the very difficulties leadership needs to understand.

When the response is assembled, trace a small number of examples through it. For a fee arrangement, follow the agreement into the account configuration and resulting calculation. For an advertisement, follow the item through submission, approval, distribution, and any later review. The purpose is to see whether the firm can explain the complete sequence and support the explanation with records.

Gaps discovered during the exercise should be addressed candidly. A current explanation can clarify an older record, but it should be identified as a current explanation. Improvements made after a weakness is discovered should retain their actual timing. Preserving the distinction between what existed previously and what changed later supports an accurate account of the firm’s response.

The same discipline applies during an actual examination. A designated coordinator can track requests, owners, deadlines, and material clarifications while the relevant personnel provide substantive information. Questions about scope or timing should be raised promptly with the examination team. Potential legal issues warrant appropriate counsel involvement, particularly when they affect the accuracy or handling of a response.

What leadership should know before the request arrives

The opening stage of an examination cannot establish everything about an RIA’s compliance program. It can, however, reveal where further questions are necessary. Inconsistent explanations, uncertain populations, inaccessible records, and unsupported closure decisions can each point toward an area the firm itself needs to understand more clearly.

For the CEO and CCO, preparation begins with an honest assessment of those conditions. Can the firm explain how its current business is supervised? Can the people responsible for a process produce the records that support their description? Can leadership distinguish completed corrective work from work still awaiting validation?

My RIA Lawyer’s SEC mock examination services combine document review, staff interviews, findings, and remediation planning. For a growing RIA, that process can provide a structured opportunity to examine how the firm’s explanations hold up when tested against its records.

Before the next examination request arrives, choose one important process and follow it from the firm’s stated procedure through the evidence of what occurred. The difficulty of that exercise—and what it reveals—can tell leadership where preparation needs to begin.