Securities and Exchange Commission IM Chief Outlines 2026 Priorit

The Securities and Exchange Commission’s Division of Investment Management, often shortened to “IM,” is not exactly the part of Washington that shows up in movie trailers. There are no car chases, no dramatic courtroom gasps, and usually no one slams a folder onto a conference table while shouting, “Where are the fund disclosures?” Still, for investment advisers, mutual funds, ETFs, private funds, compliance officers, fund boards, and retail investors, the Division’s 2026 direction matters a great deal.

In late 2025, Brian Daly, Director of the SEC’s Division of Investment Management, outlined several priorities that help explain where the Commission’s investment-management policy work may be headed in 2026 and beyond. His message was not simply “more rules, more paperwork, more coffee.” Instead, the tone emphasized listening, modernization, thoughtful deregulation, wider access to alternative investments, and a serious but practical approach to artificial intelligence.

At the same time, the SEC’s Fiscal Year 2026 Examination Priorities show that core compliance themes are not going anywhere. Fiduciary duty, conflicts of interest, disclosure, custody, cybersecurity, operational resiliency, Regulation S-P, AI supervision, private credit, complex ETFs, and retail investor protection remain firmly on the radar. In other words, the SEC appears to be saying: innovation is welcome, but please do not bring a flamethrower to a paperwork office.

What Does the SEC Division of Investment Management Do?

The Division of Investment Management develops regulatory policy for investment advisers and investment companies, including mutual funds, exchange-traded funds, closed-end funds, business development companies, and other asset-management products. It advises the Commission on rules and forms under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. That may sound highly technical because it is. But the practical impact is simple: IM helps shape the rules for how trillions of dollars are managed, disclosed, marketed, and protected.

For everyday investors, this affects the fund in a retirement account, the ETF bought through a brokerage app, the adviser managing a portfolio, or the private-market product that may someday appear in a 401(k) menu. For firms, it affects compliance programs, product design, board oversight, disclosure practices, custody procedures, and the delicate art of not accidentally turning a routine exam into a regulatory bonfire.

Brian Daly’s 2026 Message: Listen First, Regulate Smarter

One of the most striking parts of Daly’s remarks was his emphasis on listening. He described listening as a core regulatory tool and made clear that the Division’s priorities are shaped by the broader Commission agenda. This matters because securities regulation often works best when regulators understand how rules operate in real markets, not just in elegant PDFs that look wonderful until someone tries to use them.

Daly’s comments suggest a Division that wants more dialogue with asset managers, advisers, fund boards, investors, lawyers, technologists, and compliance professionals. That does not mean the SEC is packing up its examination program and opening a wellness retreat. It means the Division wants feedback on where rules are outdated, where investor protection is still essential, and where innovation is being slowed by requirements that no longer match modern market structure.

The Four Big Themes for 2026

Daly’s remarks pointed to four broad themes: deregulation, modernization, democratization of alternative investments, and promotion of artificial intelligence. These themes overlap with broader SEC priorities in 2026, including capital formation, disclosure reform, crypto-asset clarity, enforcement recalibration, and examination transparency.

1. Thoughtful Deregulation Without Abandoning Investor Protection

Deregulation can be a loaded word. For some, it sounds like removing unnecessary barriers. For others, it sounds like letting raccoons run the compliance department. Daly’s framing was more measured. He suggested that the Division is interested in reviewing rules that may no longer serve their original purpose, especially where outdated requirements increase costs without meaningfully improving investor outcomes.

The key word is “thoughtful.” The SEC is still the investor’s advocate, and retail investor protection remains a central mission. But when rules are duplicative, technologically outdated, or misaligned with how funds and advisers actually operate, the Division appears open to targeted change. That could mean more exemptive relief, more flexible guidance, and more willingness to ask whether certain requirements still belong on the books.

2. Modernizing a Rulebook Built for Another Era

Modernization may be the least controversial priority, at least until everyone starts arguing about the details. Many investment-management rules were built for an era of paper files, mailed statements, physical signatures, and technology that now looks like it belongs in a museum next to a fax machine labeled “ancient compliance artifact.”

Daly highlighted custody and recordkeeping as examples of areas where rules must better reflect a digital, cloud-based, multi-platform environment. Digital assets, AI tools, distributed service providers, electronic communications, and automated workflows have changed how advisers and funds operate. A modernized rulebook would ideally be technology-neutral, platform-independent, and flexible enough to survive the next wave of innovation.

This is especially important for compliance teams. Rules that mandate specific technologies can age badly. Rules that focus on outcomes, controls, supervision, and accountability tend to age better. A future-ready approach would ask whether firms can preserve required records, protect client assets, supervise communications, and demonstrate compliance regardless of whether the tool is a cloud archive, an AI assistant, or whatever comes after today’s platforms.

3. Democratizing Access to Alternative Investments

Alternative investments are no longer a quiet corner of the institutional market. Private credit, private equity, hedge fund strategies, real assets, interval funds, tender-offer funds, and closed-end fund structures are increasingly part of the conversation about retail portfolios and retirement plans. Daly’s remarks reflected this trend, especially the policy interest in expanding access to alternative assets while avoiding a reckless “everybody gets a private fund” free-for-all.

The SEC’s 2026 examination priorities also show why this topic is sensitive. Examiners are expected to focus on alternative investments such as private credit, private funds with extended lock-up periods, complex ETFs, option-based ETFs, leveraged and inverse ETFs, and products with higher fees or less-liquid holdings. The concern is not that these products are automatically bad. The concern is whether they are suitable, fairly disclosed, properly valued, appropriately supervised, and recommended in a way that matches the investor’s objectives, risk tolerance, time horizon, and liquidity needs.

For advisers, this means documentation matters. If a retail client nearing retirement is placed into a complex, illiquid, expensive product, the adviser should be able to explain why. “It looked exciting” is not a compliance memo; it is a red flag wearing tap shoes.

4. Promoting Artificial Intelligence With Real Guardrails

Artificial intelligence is another major theme. Daly described AI as a potentially transformative force for investment management, especially for disclosure and investor experience. Imagine a dense mutual fund prospectus becoming an interactive tool that can answer investor questions in plain English. That could be a genuine improvement over forcing people to wrestle with legal language so thick it needs a snowplow.

But AI also raises difficult regulatory questions. Is an AI-generated response marketing material? Is it investment advice? Who is responsible if the tool gives inaccurate, misleading, or unsuitable information? How should firms supervise AI models, test outputs, retain records, prevent bias, and disclose limitations? These are not academic puzzles. They are practical compliance questions that advisers and funds must address before AI becomes deeply embedded in client communication, portfolio analytics, risk management, and distribution.

The SEC’s 2026 priorities suggest that emerging financial technology, automated investment tools, AI, trading algorithms, cybersecurity, and operational resiliency will remain important examination topics. Firms that use AI should have policies, testing, governance, vendor oversight, human review, and clear escalation paths. The machine may be smart, but the compliance responsibility still has a human address.

SEC 2026 Examination Priorities: The Practical Compliance Map

The Division of Examinations’ 2026 priorities are not a complete list of everything examiners may review, but they are a useful map of heightened risk areas. For investment advisers, the priorities continue to emphasize fiduciary standards of conduct, effectiveness of compliance programs, never-examined and recently registered advisers, conflicts of interest, fee practices, disclosures, custody, valuation, marketing, and portfolio management.

For registered investment companies, the SEC continues to focus on compliance programs, disclosures, governance, valuation, liquidity, derivatives, fees, expenses, and board oversight. The themes are familiar, but the 2026 emphasis reflects newer market realities: retail access to complex strategies, use of AI, private credit growth, cybersecurity threats, and operational dependence on third-party vendors.

Fiduciary Duty Remains the Foundation

Investment advisers owe clients a duty of care and a duty of loyalty. That means advice should be in the client’s best interest, conflicts should be disclosed and addressed, and recommendations should reflect the client’s objectives and circumstances. This is not glamorous, but it is the bedrock of investment-adviser regulation.

In 2026, advisers should expect examiners to review whether recommendations are consistent with disclosures, whether financial incentives create conflicts, whether best execution is reasonably pursued, and whether the firm’s policies are actually implemented. A compliance manual that exists only as a decorative binder is not a program. It is office furniture.

Compliance Programs Need to Be Alive, Not Fossilized

The SEC is expected to review whether advisers’ compliance policies and procedures are reasonably designed for the firm’s real business. This includes marketing, valuation, trading, portfolio management, disclosure, filings, custody, privacy, and annual reviews. A small adviser using simple portfolios may need a different program from a large adviser managing private funds, ETFs, and AI-driven analytics. The question is whether the program fits the risks.

Annual reviews are especially important. They should not be treated as a ceremonial document signed once a year and then forgotten. A meaningful annual review evaluates what changed, what failed, what complaints arose, what testing found, what new products were launched, and whether controls need improvement.

Private Credit and Complex Products Are in the Spotlight

Private credit has grown quickly, and with growth comes regulatory attention. The SEC’s focus on private credit, less-liquid investments, closed-end funds, private funds, and complex ETF structures reflects a basic concern: investors must understand what they own, how it is valued, how liquid it is, what it costs, and what could go wrong in stressed markets.

Complex products are not automatically unsuitable. They can serve legitimate portfolio purposes. But they require clear disclosure and strong supervision. For example, a leveraged ETF may be designed for short-term exposure, not casual long-term holding. A private credit fund may offer attractive income potential but involve liquidity constraints and valuation complexity. Advisers must connect the product’s features to the client’s needs rather than relying on shiny brochure energy.

Cybersecurity, Privacy, and Operational Resiliency

Cybersecurity remains a major SEC concern because investor information is valuable, financial systems are interconnected, and ransomware criminals rarely respect business hours. The 2026 priorities emphasize cybersecurity policies, incident response, data loss prevention, access controls, account management, vendor oversight, and recovery from cyber incidents.

Regulation S-P is particularly important because it focuses on safeguarding customer records and information. Compliance teams should review incident response programs, service-provider arrangements, notification procedures, and data governance. A firm does not need to predict every cyberattack, but it should be able to show that it has prepared reasonably, tested controls, and assigned responsibility.

Crypto Is Not Gone, Just Reframed

One notable change in the 2026 examination priorities is that crypto asset-related services do not appear as a standalone priority in the same way they did in some prior years. That does not mean the SEC has stopped caring about digital assets. Instead, crypto-related issues may now appear through broader categories such as custody, disclosure, operational risk, investor protection, fraud, technology controls, and recordkeeping.

This shift matters for asset managers experimenting with tokenization, digital assets, DeFi exposure, or blockchain-based infrastructure. The practical message is not “ignore crypto compliance.” It is “treat crypto activities like any other material business risk, with specific controls for custody, valuation, disclosure, liquidity, conflicts, cybersecurity, and client suitability.”

What Investment Advisers Should Do Now

Advisers do not need to panic, laminate the exam priorities, and sleep under their desks. But they should take the 2026 signals seriously. A practical first step is a gap analysis comparing current policies with the SEC’s stated focus areas. The review should cover fiduciary duty, conflicts, fees, disclosures, private investments, complex products, AI use, cybersecurity, Regulation S-P, custody, valuation, marketing, vendor oversight, and annual compliance testing.

Second, firms should update documentation. If a product is complex or illiquid, the file should show why it fits the client. If AI is used, the firm should document governance, testing, approved use cases, and supervision. If a vendor handles sensitive data, the firm should maintain due diligence and monitoring records. If a conflict exists, the disclosure should be specific enough that a real person can understand it without hiring a translator fluent in legal fog.

Third, leadership should treat compliance as a business function, not a department of “no.” Good compliance helps firms innovate safely. It can speed product launches, reduce exam risk, improve investor trust, and prevent small problems from becoming expensive headlines.

What Fund Boards Should Watch

Fund boards should pay close attention to governance around new products, valuation, liquidity, derivatives, fees, expenses, cybersecurity, service providers, and AI-enabled investor tools. Board materials should clearly explain risks, controls, exceptions, and trends. Directors do not need to code an AI model or personally calculate every private credit valuation, but they should ask informed questions and receive useful answers.

For funds entering more complex or less-liquid strategies, board oversight becomes especially important. Directors should understand how assets are valued, how liquidity is managed, how conflicts are handled, how disclosures are updated, and how investors are educated. A board packet that says “everything is fine” in twelve-point font is not oversight; it is a lullaby.

Practical Experience: How 2026 SEC Priorities Feel Inside Real Firms

In practice, SEC priorities are rarely experienced as abstract policy themes. They show up as meeting agendas, revised procedures, spreadsheet trackers, anxious emails, and the unforgettable moment someone asks, “Do we have documentation for that?” Every compliance professional knows this sound. It is the sound of a quiet room becoming even quieter.

One common experience for advisers is discovering that their policies are technically correct but operationally stale. For example, a firm may have a cybersecurity policy that references annual access reviews, but no one has updated the user list after a team restructuring. Another firm may have an AI policy drafted after a vendor demo, but employees are already using public AI tools to summarize client notes. In both cases, the issue is not evil intent. It is the gap between written controls and everyday behavior. The SEC’s 2026 focus on AI, cybersecurity, and operational resiliency makes that gap more important than ever.

Another practical lesson involves complex products. A product committee may approve a private credit strategy after reviewing returns, fees, and portfolio fit. But when an examiner asks why the product was recommended to a particular client, the firm needs client-level reasoning. Why did the adviser believe the client could tolerate illiquidity? Was the fee structure explained? Were alternatives considered? Did the client understand the risk that valuation may be less transparent than public securities? The best firms build this analysis into their workflow before the sale, not after an exam request arrives with the emotional temperature of a dentist appointment.

Firms also learn that vendor oversight is not a one-time ceremony. Many advisers rely on third parties for data storage, portfolio systems, client portals, cybersecurity tools, pricing feeds, compliance archiving, and AI-enabled analytics. A strong vendor file includes due diligence, contracts, service-level expectations, information-security reviews, business-continuity information, and ongoing monitoring. A weak vendor file includes a logo, a handshake, and hope. Hope is not an internal control.

For fund boards, the experience is often about asking better questions. When management presents a new fund structure, directors should ask how the product works in normal markets and stressed markets. When AI tools are introduced, directors should ask how outputs are tested and supervised. When private or less-liquid assets are added, directors should ask how valuation and liquidity risks are managed. Strong governance is not about making every director a specialist in every topic. It is about ensuring the board receives clear information, challenges assumptions, and documents the oversight process.

Compliance teams that handle SEC priorities well usually share three habits. First, they translate regulatory themes into specific testing steps. Second, they involve business leaders early so controls match reality. Third, they keep evidence. If it was reviewed, tested, escalated, corrected, or approved, the firm should be able to show it. In an examination, undocumented good intentions are like invisible umbrellas in a rainstorm: comforting in theory, useless in practice.

The biggest experience-based takeaway is that 2026 will reward firms that can connect innovation with discipline. The SEC’s Investment Management leadership is signaling openness to modernization, AI, and broader investment access, but that openness does not erase fiduciary obligations. The firms best positioned for the year ahead will be those that can say, with evidence: we innovated, we understood the risks, we disclosed them clearly, we supervised the process, and we protected investors while doing it.

Conclusion

The SEC Division of Investment Management’s 2026 direction is not a simple story of more regulation or less regulation. It is a story of recalibration. Brian Daly’s priorities suggest a Division interested in listening, modernizing outdated rules, supporting responsible innovation, expanding thoughtful access to alternative investments, and exploring AI’s potential without ignoring its risks.

At the same time, the SEC’s examination priorities remind firms that the basics still matter. Fiduciary duty, conflicts, disclosure, custody, cybersecurity, privacy, valuation, liquidity, governance, and compliance testing remain central. The message for advisers and funds is clear: build for the future, but keep your compliance shoes tied.

For investors, the 2026 priorities may lead to more choice, better technology, and clearer disclosure. For firms, they create an opportunity to modernize programs before examiners ask difficult questions. And for the market as a whole, the challenge is to balance innovation with trust, because in finance, trust is not a decorative accessory. It is the operating system.