On September 6, 2023, the U.S. Securities and Exchange Commission’s Division of Examinations published a risk alert, Investment Advisers: Assessing Risks, Scoping Examinations, and Requesting Documents (the “Risk Alert”). The Risk Alert is one of the principal documents used by the SEC Staff to communicate to investment advisers how the SEC Staff interprets the Investment Advisers Act of 1940 (the “Advisers Act”), as well as how the SEC Staff expects investment advisers to comply with the Advisers Act.[1] The specific purpose of the Risk Alert is to describe how the Staff selects which investment advisers it intends to inspect and which risk areas of that investment adviser it intends to examine. This Client Alert describes the criteria the Staff purports to use to select which firms and focus areas to examine. It then summarizes the types of documents investment advisers may be expected to produce in response to a Staff examination notice. As noted in the Risk Alert, the views represented in the Risk Alert are the views of the SEC Staff, which are not necessarily the views of the SEC itself. Investment Adviser Selection Process As presented in the Risk Alert, the Staff typically selects an investment adviser for examination for one or more of the following reasons: (a) the investment adviser offers services or products that pose particular risks that the SEC is focused on; (b) the SEC has received a tip, complaint or referral regarding the investment adviser; (c) the results of prior examinations of the investment adviser have included deficient practices and/or material compliance program concerns; (d) the investment adviser poses supervisory concerns; (e) the presence of potential conflicts of interests; (f) the investment adviser has not been examined recently and/or is newly registered; (g) the investment adviser has undergone leadership changes; (h) the investment adviser is facing financial or market stresses; (i) the existence of news reports involving or potentially impacting the investment adviser; (j) the presentment of data from third-party data services; (k) the disclosure history of the investment adviser; and (l) the investment adviser has access to client and investor assets (i.e., custody) and/or faces related compliance risks. Examination Scope and Typical Request List The scope of an examination of a selected investment adviser depends on the investment adviser’s business model, applicable risks, and the reasons the investment adviser was selected for examination (see list above). Generally, all examinations will review an investment adviser’s operations, disclosures, conflicts of interest, and compliance practices in connection with the investment adviser’s custody and safekeeping of client assets, valuation, portfolio management, fees and expenses, and brokerage and best execution. The Staff concluded the Risk Alert by attaching a list outlining the types of initial information, including documents, that the Staff may request and review during a typical examination of an investment adviser (the “Request List”).  The Staff notes that it does not intend for this list to be exhaustive, and the Risk Alert states that the Request List applies to investment advisers that “[do] not engage in additional activities and/or have additional relationships (e.g., manage private funds).” In addition to including books and records required to be maintained under Rule 204-2 under the Advisers Act (the recordkeeping rule), the Request List includes information that is required by various other regulations under the federal securities laws, as well as documents that have historically been requested by the Staff during adviser examinations. Further, the Request List reflects items from areas the Staff has identified through publication of its annual examination priorities over the last few years.[2] Notably, the Request List asks for information on an investment adviser’s remote offices and branch locations, which is indicative of the Staff’s examination priorities related to “operational risk as a result of a dispersed workforce,” particularly throughout and post-pandemic and as technology evolves.[3] Other documentation identified in the Request List appears to foreshadow specific recordkeeping requirements that will be in effect if and when the SEC adopts rule proposals, for example, relating to investment advisers’ cybersecurity risk management[4], outsourcing to outside vendors[5], and custody and safe keeping of client assets[6]. An investment adviser, however, should not presume that the Staff will request information only enumerated in statutes or SEC guidance and pronouncements, and it should anticipate that the Staff may make novel documentation requests, citing its authority under the Advisers Act.[7] For more information This Client Alert has been prepared by John Hunt and Rachael Schwartz, Partners, Abigail Bertumen, Counsel, and Johanna Colpritt, Associate, of the international law firm of Sullivan & Worcester LLP.  Mr. Hunt, Ms. Schwartz and Ms. Bertumen are in the Investment Management Practice and Ms. Colpritt is in the Corporate Practice. Mr. Hunt is also the co-head of Sullivan’s Private Fund Formation Practice. For more information, Mr. Hunt may be reached in our Boston office by calling +1 (617) 338-2961 or our London office by calling +44 (0)20 7448 1000, or by email atjhunt@sullivanlaw.com; Ms. Schwartz may be reached in our New York office by calling +1 (212) 660-3069 or by email at rschwartz@sullivanlaw.com; Ms. Bertumen may be reached in our Washington D.C. office by calling +1 (202) 775-1205 or by email atabertumen@sullivanlaw.com; Ms. Colpritt may be reached in our Boston office by calling +1 (617) 338-2465 or by email at jcolpritt@sullivanlaw.com. [1]      The other principal documents used by the Staff to communicate generally with investment managers are (a) Information for Entities Subject to Examination or Inspection by the Securities and Exchange Commission (commonly known as the “Examination Brochure”), which describes the Staff’s objectives when conducting an examination, (b) Form ADV (investment advisers and exempt reporting advisers) and Form PF (private funds managed by investment advisers and exempt reporting advices), which provides the Staff with reasonably current information used to help it determine potential risk areas specific to an investment adviser, (c) Examination Priorities, in which the Staff describes for investment managers areas of risk that the Staff will examine generally over the upcoming year, and (d) letters to the investment management industry and risk alerts describing Staff findings and conclusions as they relate specifically to investment manager compliance with the Advisers Act. [2]      See, e.g., SEC Division of Examinations, 2023 Examination Priorities (Feb. 7, 2023) (identifying as “core” areas custody and safekeeping of client assets, valuation, portfolio management, and brokerage and execution, as well as the typical subjects of conflicts and compliance issues and oversight and approval of investment advisory fees expenses, including calculation of fees, alternative ways to maximize revenue and excessive fees).  [3]      See e.g., Select COVID-19 Compliance Risks and Considerations for Broker-Dealers and Investment Advisers, Risk Alert, Office of Compliance Inspections and Examinations (Aug. 12, 2020) and the Division of Examination’ 2022 Examination Priorities (Mar. 30, 2022). [4] Cybersecurity Risk Management for Investment Advisers, Registered Investment Companies, and Business Development Companies, Rel. No. IC-34497 (Feb. 9, 2022) (proposing release). [5]      Outsourcing by Investment Advisers, Rel. No. IA-6176 (Oct. 26, 2022) (proposing release) (requiring advisers to make and keep certain books and records attendant to their obligations under the proposed rule’s vendor oversight framework, such as lists or records of outsourced functions and records documenting their due diligence and monitoring of each service provider performing such functions). [6]      Safeguarding Advisory Client Assets, Rel. No. IA-6240 (Feb. 15, 2023) (proposing release). [7]      See generally Section 204 of the Advisers Act, Reports by Investment Advisers. (“All records (as so defined) of . . . investment advisers are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations by representatives of the Commission as the Commission deems necessary or appropriate in the public interest or for the protection of investors.”)