SEC Issues Risk Alert on Investment Adviser Conflicts of Interest

On June 9, 2026, the SEC’s Division of Examinations (“EXAMS”) issued a risk alert (the “Risk Alert”) identifying recurring deficiencies related to economic conflicts of interest observed by EXAMS staff in examinations of SEC-registered investment advisers. The Risk Alert, which reiterates topics identified in EXAMS’ 2026 Examination Priorities, reminds advisers of their fiduciary obligations to identify, disclose, and manage economic conflicts of interest.

Key observations from the Risk Alert are discussed below.

Cash Management Conflicts

EXAMS staff observed advisers recommending cash sweep programs—including programs maintained at affiliated institutions—that generate revenue for the adviser without fully disclosing that conflict. The staff gave examples of problematic practices, including:

• Failing to disclose revenue sharing arrangements with custodians or incentives to recommend cash sweep programs that generate the greatest possible compensation to the adviser;
• Disclosing that the adviser “may” receive revenue for client cash balances held in third-party bank deposit sweep programs where the conflict actually exists;
• Failing to disclose that client cash balances are subject to asset-based advisory fees that could result in negative returns to the client; and
• Failing to disclose economic benefits received by the adviser for money market fund share class selection recommendations, including failing to disclose that lower-cost shares are available.

Mutual Fund Share Class Selection

EXAMS staff observed that advisers continue to select mutual fund share classes paying 12b-1 fees or other compensation to the adviser, an affiliate, or an individual adviser representative where lower-cost share classes of the same fund were available. The Risk Alert also noted instances where advisers failed to disclose economic benefits related to custodial credits, margin loans and credits, and transaction markup fees.

Form ADV Disclosures

EXAMS staff identified deficiencies in Form ADV Part 2A brochures, including incomplete or inconsistent disclosures regarding financial industry activities and affiliations (Item 10) and brokerage practices (Item 12). The staff noted that this lack of disclosure limits clients’ visibility into the full scope of an adviser’s economic incentives.

Fee Billing Inconsistences

The Risk Alert also addresses fee billing issues, including advisers charging advisory fees that are inconsistent with advisory agreements or disclosures. Examples include:

• Prorating advisory fees for deposits or withdrawals during a billing period where agreements and disclosures do not provide for prorating;
• Charging asset-based fees on assets that advisory agreements exclude from billing calculations, such as initial cash inflows or fixed income assets;
• Applying incorrect fee rates or failing to apply reduced rates for cash, fixed income, or householded accounts;
• Failing to rebate transaction fees where agreements state that clients would not incur such fees;
• Charging fees for services not provided, including on inactive or unassigned accounts; and
• Failing to refund prepaid fees after termination, including where clients had not submitted written refund requests.

Compliance Program Deficiencies

The EXAMS staff observed that some advisers adopted compliance policies that did not adequately address an adviser’s actual billing arrangements or economic conflicts, including policies that failed to address prepaid fees, fee reductions, householding, margin, rebates, refunds, or controls to test fee calculations. The Risk Alert also calls out situations where compliance policies, client agreements, and disclosures contain conflicting or overly complicated descriptions of fee practices, creating both client confusion and examination risk.

Looking Ahead

The Risk Alert reiterates that economic conflicts remain a central focus of SEC examinations. Advisers should expect EXAMS staff to scrutinize whether conflicts are disclosed accurately and addressed consistently with actual practices, whether advisory fees are calculated in accordance with client agreements and related disclosures, and whether written compliance policies include procedures for addressing economic conflicts or fee-related issues. Advisers should take this opportunity to review their economic conflicts, fee billing practices, and related disclosures, particularly in areas involving revenue sharing arrangements, share class selection, affiliate compensation, margin, custodial credits, and clearing relationships in light of the deficiencies identified in the Risk Alert.

If you have any questions about this client alert, please reach out to the authors or your usual MoFo contact.