On June 9, 2026, the U.S. Securities and Exchange Commission (the “SEC”)’s Division of Examinations (the “Division”) issued a Risk Alert detailing its observations of investment advisers (each an “Adviser” and collectively “Advisers”) related to economic conflicts of interest. The Division based its Risk Alert on examinations related to Advisers’ fiduciary duties and issued it to assist Advisers in developing effective compliance programs and disclosures with respect to economic conflicts of interest. The Risk Alert is broken down into five main areas where the Division identified economic conflicts of interest that were undisclosed or disclosures that were incomplete or misleading; Adviser practices that were inconsistent with advisory agreements and disclosures; and compliance programs did not fully address economic conflicts of interest and risk:
A. Conflicts of Interest Associated with Advisers’ Cash Management Recommendations
B. Conflicts of Interest Associated with Other Revenue Opportunities
C. Disclosing Fees and Economic Conflicts of Interest in Form ADV
D. Fees Deviating from Advisory Agreements and Fee-Related Disclosures
E. Compliance Programs Identifying and Addressing Fee-Related Issues
A. Conflicts of Interest Associated with Cash Management Recommendations
The Division observed that some Advisers recommended programs where clients’ uninvested cash was automatically swept into interest-bearing accounts (“Cash Management Recommendations”). In some cases, these accounts were held at affiliated parties. Where Advisers received revenue in connection with these recommendations, an economic conflict of interest was created. As fiduciaries, Advisers were required to fully and fairly disclose such conflicts so that clients could provide informed consent. The Division identified multiple categories of deficiencies in this area:
Deficiencies in Disclosures Regarding Revenue Sharing Arrangements
- Some Advisers omitted material information or provided misleading disclosures regarding revenue-sharing arrangements with clearing broker-dealers or custodians including:
- revenue received from custodians based on the cash balances their clients held with those custodians.
- incentives to recommend cash sweep vehicles that generated the greatest possible compensation to the Adviser.
- Some Advisers used misleading language in disclosure statements, stating that they “may” receive revenue from third-party bank deposit sweep programs when in fact they did receive such revenue.
Deficiencies in Disclosures Regarding Fees, Expenses, and Conflicts of Interest
- Some Advisers failed to disclose that certain clients’ cash balances were subject to the Advisers’ asset-based fees.
- Some Advisers omitted disclosures regarding the impact that fees and expenses associated with Cash Management Recommendations could have on clients’ investment returns with respect to cash balances.
- In some cases, clients generated negative returns due to the fees and expenses associated with these recommended programs.
Deficiencies in Disclosures Regarding Money Market Fund Share Class Selection
- Some Advisers failed to disclose that their only Cash Management Recommendations were higher-cost money market funds that participated in revenue-sharing arrangements with the Advisers.
- Some Advisers failed to disclose the existence of lower-cost and higher-yielding share classes of the same money market funds that did not provide revenue sharing to the Advisers.
B. Conflicts of Interest Associated With Other Revenue Opportunities
The Division observed a broad range of conflicts of interest arising from economic benefits received by Advisers.
Mutual Fund Share Class Selection
The Division observed that some Advisers selected higher-cost mutual fund share classes for their clients when lower-cost share classes of the same funds were available. The higher-cost share classes paid Rule 12b-1 fees to the Adviser, related entities, or affiliated individual adviser representatives. The Division noted that such arrangements created clear conflicts of interest that were not adequately disclosed to clients.
Other Economic Benefits — Disclosures
Some Advisers failed to provide full and fair disclosure of other economic benefits they received, including failures to disclose:
- That affiliated broker-dealers received revenue from interest rate markups on margin loan.
- That Advisers received custodial credits from unaffiliated broker-dealers.
- That Advisers would incur termination fees if they ended certain clearing relationships, creating an incentive to maintain those relationships even if not in clients’ best interests.
- That fees and expenses were charged to clients beyond those charged by clearing broker-dealers.
C. Deficiencies in Form ADV Disclosures
The Division also noted several deficiencies in Advisers’ Forms ADV Part 2A, including the two Items related to conflicts of interest arising from compensation arrangements:
Item 10 — Financial Industry Activities and Affiliations
Under Item 10, Advisers are required to disclose their financial industry activities and affiliations. The Division observed Advisers that failed to fully disclose these activities and affiliations, and particularly material conflicts of interest created through compensation agreements with affiliates. For example, some Advisers did not disclose that an affiliated broker-dealer was likely to benefit indirectly through revenue generated by clearing firms performing services for the Advisers’ clients.
Item 12 — Brokerage Practices
Under Item 12, Advisers are required to disclose the factors they consider when selecting or recommending broker-dealers for client transactions and when evaluating the reasonableness of their compensation. The Division observed:
- Disclosures that were inconsistent with other disclosures made by the same Adviser.
- Incomplete disclosures, such as in cases where Advisers had revenue sharing arrangements with clearing agencies but did not disclose all material facts about those relationships.
D. Advisory Fees Deriving From Agreements and Disclosures
The Division found instances of Advisers charging fees that were inconsistent with their own advisory agreements, their disclosures to clients, or both. The Division identified the following categories of problems:
Fee Calculation Errors
The Division observed advisory fee calculations that were inconsistent with the Advisers’ disclosures in their Form ADVs and of the terms in written advisory agreements. Examples include:
- Some Advisers prorated advisory fees for mid-period deposits or withdrawals even though their advisory agreements and disclosures did not provide for prorating in such circumstances.
- Some Advisers charged asset-based fees on holdings that were specifically excluded from fee calculations under the terms of advisory agreements (e.g., initial cash inflows and fixed income assets).
- Some Advisers applied incorrect fee rates, failing to apply reduced rates for cash and fixed income assets and mutual funds.
- Some Advisers failed to “household” accounts for purposes of fee rate breakpoints.
- Some Advisers did not rebate certain transaction fees (e.g., mutual fund transaction fees) even though advisory agreements expressly promised clients they would not incur such fees.
Fees Charged for Services Not Provided
The Division observed Advisers that assessed fees to clients for services not provided or assessed higher fees than agreed to for the services that were provided, including:
- Wealth management and advisory services that were not actually delivered.
- Advisory fees charged on inactive accounts that received no supervisory or management services whatsoever.
- Charging clients more than once for the same services, including as a result of internal asset transfers.
Failure to Refund Unearned Prepaid Fees
The Division also noted that some Advisers did not refund unearned prepaid fees, including where clients had not explicitly provided written notice requesting refunds.
E. Weaknesses in Compliance Programs
The Division observed instances where Advisers’ written policies and procedures were not reasonably designed to prevent violations of the Advisers Act, contrary to the requirements of Advisers Act Rule 206(4)-7 (aka the “Compliance Rule”). In these instances, compliance programs failed to adequately address fee-related billing practices and economic conflicts of interest, including many of the substantive topics discussed above. In general, the Risk Alert highlighted (a) incomplete coverage of billing arrangements, (b) conflicting internal documentation, and (c) lack of fee-monitoring controls.
Conclusion
The Division’s Risk Alert highlights recurring deficiencies discovered during routine examinations of Advisers, which the Division believes to be violations of fiduciary duties or other legal duties. Advisers are reminded to: (a) ensure adequate policies and procedures and full and fair disclosures related to economic conflicts of interest, (b) implement and monitor such policies and procedures, and (c) actively identify and address any new economic conflicts of interest. Failure to follow these guidelines may result in examination deficiencies, Advisers returning money to clients owed, and, in extreme cases, referral to the SEC’s Division of Enforcement.