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Why examiners care
What the review must cover
The review is a top-to-bottom check of the firm's compliance program. The areas the SEC expects to see covered include:
- Portfolio management — suitability, allocation, drift, and concentration controls.
- Trading practices — best execution, order aggregation, allocation, personal trading.
- Marketing and advertising — compliance with the Marketing Rule.
- Client communications and disclosures — Form CRS, brochures, performance reporting.
- Books and records — completeness, retention, accessibility.
- Privacy and cybersecurity — Regulation S-P implementation.
- Custody — qualified custodian status, surprise audits, inadvertent custody.
- Code of Ethics — personal trading, access persons, gifts and entertainment.
- Service providers — adequacy of oversight.
The 2023 written-documentation amendment
Before 2023, the rule required the review but did not explicitly require a written record of it. The amended rule closes that gap. The SEC can now verify that the review actually happened by requesting the written record. Firms that were doing the review only orally or informally are exposed for the first time.
What "adequate" documentation looks like
A defensible written annual review names what was reviewed, the period covered, the reviewer (typically the CCO or designee), the findings, the corrective actions taken, and the timeline for any open items. It is signed and dated. It is retained as part of the firm's books and records.
Common deficiencies
- No written record at all — the most serious finding.
- Generic checklist with no firm-specific findings — examiners read this as a fill-in-the-blank exercise rather than a real review.
- Findings identified but no corrective actions documented — the SEC views this as worse than not finding the issue.
- Review covers only a subset of required areas.
How StratiFi thinks about the annual review
The annual review is not a compliance ritual — it is the firm's chance to find its own gaps before the SEC does. Done well, it surfaces concrete actions: a policy that needs updating, a control that is not being followed, a record that is hard to produce. The firms that benefit most treat it as continuous evidence collection through the year, with the annual document being a synthesis rather than a one-time audit.
Frequently asked questions
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Who has to perform the annual review?
Every SEC-registered investment adviser. The CCO typically owns the review, and may engage external consultants to assist. State-registered advisers are subject to similar state-level requirements. -
Does the review need to be signed?
While the rule does not literally require a signature, the practical standard is a signed and dated document — the CCO's name, the review period, the date completed. Examiners expect this. -
What's the consequence of a missed review?
Failure to conduct or document the annual review is a direct violation of Rule 206(4)-7 and is reliably cited as a deficiency in examinations. Repeated failures can be referred to Enforcement.