On June 9, 2026, the SEC’s Division of Examinations published a risk alert regarding investment adviser practices in addressing economic conflicts of interest consistent with their fiduciary obligations under the Investment Advisers Act of 1940. The risk alert highlights observations from the staff’s review of the economic incentives advisers and their financial professionals may have in making recommendations to clients, including the identification of economic conflicts of interest that were not adequately disclosed, adviser practices that were inconsistent with agreements and disclosures, and compliance programs that did not fully address economic conflicts of interest.
Cash Management Recommendations. The staff observed examples where advisers made cash management recommendations that resulted in revenue to the advisers, but failed to provide full and fair disclosure of their related economic conflict of interest. The staff noted advisers that omitted material information or provided misleading disclosures regarding revenue sharing arrangements with clearing broker-dealers or the clients’ custodians. The staff also observed instances in which advisers did not adequately disclose that client cash balances were subject to the adviser’s asset-based fees or the impact that fees on cash balances may have on investment returns. In addition, the staff noted inadequate disclosures related to money market fund share class selections, including examples where advisers recommended higher-cost funds that engaged in revenue sharing with the adviser and examples where lower-cost shares of the same funds were available but did not provide for revenue sharing.
Other Revenue Opportunities. The staff also observed inadequate disclosure of economic conflicts of interest related to the mutual fund share class selection, including instances in which advisers selected a share class that pays the adviser or its affiliates Rule 12b-1 fees where a lower cost share class of the same fund was available. The staff also noted other disclosure failures related to adviser economic benefits, including with respect to recommendations regarding custodial credits, margin loans and credits, and transaction markup fees.
Form ADV Disclosures. The staff observed certain deficiencies in advisers’ Form ADV brochure disclosures regarding economic conflicts of interest. These include failures to fully disclose conflicts associated with financial industry activities and affiliates under Item 10 (e.g., compensation agreements with affiliates) and to fully disclose factors considered in recommending broker-dealers for client transactions under Item 12 (e.g., revenue sharing arrangements with clearing agencies).
Fees Deviating from Advisory Agreements and Disclosures. The staff also observed instances in which advisers charged advisory fees that were inconsistent with the relevant advisory agreements, related disclosures or both. Examples include fee calculation inconsistencies, assessment of fees for services not provided, assessment of higher fees than agreed to, and failure to refund fees billed in advance following the termination of an advisory agreement prior to the end of the relevant billing period.
Compliance Programs. Finally, the staff observed examples where advisers’ compliance programs were not reasonably designed to identify and address fee-related issues, including programs that did not address all types of billing arrangements, programs that contained conflicting information regarding fees, and programs that lacked controls regarding monitoring for accurate billing.
In sharing its observations, the examinations staff encouraged advisers to continue to review and refine their billing policies, procedures and practices to ensure they are accurate and consistent with disclosures and agreements and to review their disclosures regarding economic conflicts of interest to ensure clients are provided with full and fair disclosure. The risk alert is available here.
