SEC Issues Risk Alert on Economic Conflicts of Interest

June 10, 2026

---

The SEC’s Division of Examinations recently published a Risk Alert highlighting exam observations related to investment advisers’ obligations concerning economic conflicts of interest and associated fee practices.

What Does the Examination Risk Alert Address?

The Risk Alert summarizes deficiencies identified during SEC exams relating to advisers’ fiduciary obligations when economic incentives may influence recommendations, account structures, service providers, investment selections, or fee arrangements. The Risk Alert focuses on whether advisers have provided full and fair disclosure of material conflicts of interest, appropriately addressed those conflicts, and implemented reasonably designed compliance policies and procedures.

The SEC also highlights observations related to fee billing practices and the adequacy of compliance controls designed to oversee conflicts and fee administration.

Notably, the Risk Alert only addresses the application of advisers’ duty of loyalty in the context of economic conflicts of interest and circumstances in which advisers did not expose these conflicts of interest through full and fair disclosure. The Risk Alert notes that advisers’ fiduciary duty of care is also relevant (i.e., duty to act in the client’s best interest).

What Are the Key Takeaways?

As the SEC notes, during examinations, examiners will prioritize reviewing the economic incentives that advisers and their financial professionals may have to recommend certain products, services, or account types to clients, including the source and structure of compensation, revenue, or other economic benefits.

The Risk Alert reinforces several longstanding SEC examination priorities:

• Review conflict disclosures. Advisers should ensure that all material economic conflicts and compensation arrangements are fully and accurately disclosed, including those involving affiliates and third parties.
• Assess cash management arrangements. Firms should evaluate whether cash sweep and cash management programs create conflicts that are appropriately disclosed and addressed.
• Review share class selection practices. Advisers should document the basis for share class recommendations.
• Scrutinize the use of “may.” Firms should exercise caution when using the word “may” in disclosures to describe situations where a conflict actually exists.
• Test fee billing processes. The SEC continues to identify fee-related deficiencies. Advisers should review fee calculations, breakpoints, prorations, householding practices, and account termination procedures.
• Ensure consistency across disclosures and practices. Form ADV disclosures, client agreements, compliance policies, and actual business practices should be aligned.
• Strengthen compliance oversight. Firms should consider periodic testing and monitoring of conflicts, compensation arrangements, and fee administration controls.

Overall, the Risk Alert serves as a reminder that economic conflicts of interest and fee practices remain significant examination priorities and areas of regulatory scrutiny.

What Are Some of the Key Observations?

The SEC identified deficiencies in several areas, including:

• Conflict Disclosures Associated with Advisers’ Cash Management Recommendations
• Revenue sharing arrangements with clearing broker-dealers: For example, failing to disclose: (1) revenue received from custodians based on client cash balances; (2) incentives to recommend cash sweep vehicles that generated the highest compensation; and (3) using “may receive revenue” language when advisers were in fact receiving revenue from bank deposit sweep programs.
• Fees, expenses, and conflicts of interest: For example, failing to disclose: (1) that cash balances were included in asset-based advisory fee calculations; and (2) the impact of fees on returns, including situations where clients experienced negative returns because fees exceeded cash-management earnings.
• Money market fund share class selection: For example: (1) recommending only higher-cost money market fund share classes that provided revenue sharing to the adviser; and (2) failing to disclose the availability of lower-cost share classes or alternative funds that did not provide revenue-sharing payments.
• Conflicts Disclosure Associated With Other Revenue Opportunities
• Mutual fund share class selection: Recommending mutual fund share classes that paid Rule 12b-1 fees to the adviser, affiliated broker-dealer, or adviser representatives when lower-cost share classes were available.
• Other economic benefits: For example, failure to disclose: (1) economic benefits associated with custodial credits, margin loans and credits, and transaction markups; (2) broker-dealer affiliate revenue from interest-rate markups on client margin loans; (3) custodial and clearing credits and termination-fee incentives related to clearing relationships; and (4) marking up clearing broker fees.
• Disclosing Fees and Economic Conflicts of Interest in Form ADV Brochures
• Part 2A Item 10: Failure to disclose material conflicts arising from compensation arrangements with affiliates, including indirect benefits received by affiliated broker-dealers from clearing-firm services provided to advisory clients.
• Part 2A Item 12: Examples cited included incomplete or inconsistent disclosures regarding broker selection and compensation and failure to disclose material facts concerning revenue-sharing arrangements.
• Fees Deviating From Advisory Agreements and Fee-Related Disclosures
• Failure to calculate fees consistent with advisory agreements and disclosures (e.g., charging fees on excluded assets, failing to apply fee discounts or rebates, improper fee proration).
• Failure to calculate fees consistent with actual services provided (e.g., inactive or non-serviced accounts, duplicate billing).
• Failure to refund unearned fees (e.g., after account termination).
• Compliance Programs Identifying and Addressing Fee-Related Issues
• Failure to address all types of billing arrangements (e.g., prepaid fees or discounts).
• Failure to describe advisory fee-related practices clearly and consistently (e.g., across agreements, brochures, and policies).
• Failure to monitor for accurate fee-billing (e.g., lack of testing or oversight, including failure to identify errors).

How Can the IAA Help?

• Participate in IAA committee meetings, webinars, and other events where members and speakers discuss these and other SEC examination priorities.
• Access sample SEC examination document request lists and other examination resources in our Resource Center.
• Connect with your peers through the IAA Exchange to discuss best practices and practical approaches to addressing examination findings and compliance challenges.
• Contact the IAA Legal Team with questions about examination, compliance, and regulatory issues.