Is Your Rule 206(4)-7 Annual Review Complete?
Vigilant Insights
Introduction
Rule 206(4)-7 requires SEC RIAs to review their compliance policies and procedures at least annually to determine whether they remain adequate and are being effectively implemented.
This is an important part of an adviser’s compliance program, and one that should not be treated as a once-a-year paperwork exercise.
The SEC’s Division of Examinations has made clear that the effectiveness of an Adviser’s compliance program is a fundamental part of the examination process. SEC Examiners review the Adviser’s Annual Review as part of evaluating the overall compliance program.
Vigilant can help Advisers evaluate their compliance programs throughout the year and provide the compliance testing and annual review support needed to identify potential gaps before an SEC Examination.
Why the 206(4)-7 Annual Review Matters
An effective Annual Review should help answer the following important questions:
- Are the Firm’s policies and procedures still appropriate for its business?
- Have there been changes to the Firm’s business, personnel, products, or operations?
- Have regulatory developments created new compliance considerations?
- Did compliance issues arise during the year that require attention?
- Are the Firm’s policies and procedures actually being followed?
- Has compliance testing identified any gaps, exceptions, or deficiencies?
The SEC has noted that Annual Reviews should consider compliance matters that arose during the prior year, changes in the adviser’s business activities, and changes in applicable law or regulations.
This is where Vigilant’s Compliance Services, which includes compliance testing and preparation of the 206(4)-7 Annual Review Report can provide value. Rather than simply reviewing policies and procedures, Vigilant can help assess how the compliance program is operating in practice and identify areas that may warrant additional attention.
Have You Fallen Behind?
If your Firm has not performed compliance testing this year (and/or in prior years) and has never completed a 206(4)-7 Annual Review Report, getting your compliance program up to date should be a top priority.
Waiting until an SEC Examination to determine whether your compliance program is current can put the Firm in a difficult position.
The SEC’s FY 2026 Examination Priorities specifically identifies Annual Reviews as an area typically analyzed during examinations and states that examiners evaluate whether compliance policies and procedures are implemented and enforced.
If your Firm has fallen behind, the first step is to understand where you currently stand. Vigilant can help assess the current state of your compliance program, develop a testing approach based on your firm’s business and risk areas, and help establish a process for bringing the program up to date (while getting your program caught up as well).
Common Areas of Compliance Testing
The appropriate testing will depend on the Adviser’s business and risk profile, but may include:
- Fiduciary Duties and Conflicts of Interest
- Marketing and Advertising
- Fees and Expenses
- Trading and Best Execution
- Personal Trading and Code of Ethics
- Custody
- Valuation
- Portfolio Management
- Disclosure and Regulatory Filings
- Cybersecurity and Privacy
- Books and Records
- Business Continuity
Vigilant can perform targeted compliance testing across these and other areas, helping Advisers determine whether their policies and procedures are being followed and whether potential exceptions or deficiencies need to be addressed.
How Vigilant Can Help
Vigilant Compliance can help Advisers get their compliance programs up to date, tested, and ready for an SEC Examination.
Our team of experienced Compliance Professionals can assist with:
- Compliance Testing and Monitoring
- 206(4)-7 Annual Reviews
- Compliance Risk Assessments
- Policy and Procedure Reviews
- Identification and Remediation of Compliance Gaps
- On-Going Compliance Program Support
For Firms that have never completed an Annual Review or have fallen behind on Compliance Testing, Vigilant can help establish a practical path forward starting with where the Firm is today and working toward a more consistent, on-going compliance process.
If your 206(4)-7 Annual Review is overdue (or you have never performed one) now is the time to address it to help avoid potential regulatory violations and enforcement actions.