In recent years, the U.S. Securities and Exchange Commission’s Office of Inspections and Examinations (“OCIE”) has prioritized, in its examinations, the review of the fee billing and expense practices of investment advisers. The examinations generally focus on (1) the adequacy of the advisers’ policies and procedures and compliance programs around their fee billing and expense practices; and (2) whether the advisers’ fee billing and expense practices are consistent with disclosures to clients in advisory agreements, private placement memoranda, the Form ADV, or other materials. Any deficiencies in the policies or procedures, or practices that are inappropriate or inconsistent with such policies or procedures, could result in violations of the Investment Advisers Act of 1940 (“Advisers Act”) and/or other violations of the federal securities laws.

Recent enforcement actions, coupled with an OCIE Risk Alert earlier this year, underscore the SEC’s broadening focus on compliance in this area. The violations found in these enforcement actions mirror the most frequently identified advisory fee and expense issues outlined in the OCIE Risk Alert, which aggregated findings from deficiency letters in 1,500 adviser examinations completed during the past two years. Given the unrelenting attention to this area, advisers would be well advised to use the Risk Alert as a roadmap to the most common fee and expense compliance pitfalls, and diligently review their policies and procedures, disclosures, and practices and remediate any issues uncovered.