SEC Staff Issues Risk Alert About Economic Conflicts of Interest

Who may be interested: Registered Investment Advisers; Registered Investment Companies; Directors of Registered Investment Companies; Compliance Officers 

Quick Take: On June 9, 2026, the staff of the SEC Division of Examinations (Staff) issued a Risk Alert regarding economic conflicts of interest intended to aid investment advisers with their compliance programs and disclosures. The Risk Alert identifies various adviser activities in which potential conflicts of interest could affect an adviser’s ability to fulfill its fiduciary obligations. The Staff cited instances of undisclosed or inadequately disclosed conflicts, practices that were inconsistent with advisory agreement provisions, and compliance programs that failed to effectively address conflicts of interest risks.

These observations of the Staff highlighted common compliance shortcomings related to economic conflicts of interest and provide guidance on strengthening risk management, compliance programs, and disclosure processes; emphasizing the importance of full and fair disclosures, informed client consents, and effective written policies.

• Revenue Sharing Arrangements: Advisers did not adequately disclose revenue-sharing arrangements with custodians or clearing broker-dealers, including revenue received based on client cash balances and other incentives to recommend sweep vehicles that generated higher compensation.  Advisers also failed to affirmatively disclose their actual receipt of revenue from such programs, and instead continued to use “may receive” language when such payments were in fact being received. 
• Fees, Expenses, and Conflicts: Advisers did not fully and fairly disclose fees, expenses, and conflicts of interest when providing recommendations to clients for cash management programs, such as those where a client may experience negative returns once all expenses and fees have been applied. 
• Money Market Fund Share Class Selection: Advisers failed to make full and fair disclosures related to money market fund share class selection, including instances where advisers recommended a higher-cost money market fund share class involving revenue sharing when there is a less expensive option available to the client that does not provide a revenue share payment to the adviser.

• Mutual Fund Share Class Selection: Similar to money market fund arrangements, the Staff observed conflicts of interest in advisers’ mutual fund share class selection, including recommending share classes that paid Rule 12b‑1 fees to the adviser, its affiliated broker-dealer, or its representatives, despite the availability of lower-cost alternatives. Advisers failed to provide full and fair disclosures of the economic benefits resulting from their recommendations.
• Other Economic Benefits: The Staff also identified disclosure deficiencies where advisers did not disclose compensation and incentives associated with custodial credits, margin lending (including interest-rate markups by broker-dealer affiliates), transaction markups, and clearing arrangements. In particular, advisers did not adequately disclose credits and incentives tied to custodial and clearing relationships, including termination fees, or the practice of marking up clearing broker charges well assessed to clients.  

• Item 10: Advisers failed to disclose financial industry activities and affiliations, including material conflicts of interest through compensation agreements, such as those arising from clearing services provided to advisory clients. 
• Item 12: The Staff observed inconsistent or incomplete disclosures regarding broker-dealer selection and compensation, such as information related to revenue sharing relationships.

4. Fees Deviating from Advisory Agreements and Fee-Related Disclosures

The Staff observed instances where advisers calculated fees in a manner inconsistent with their ADV disclosures and/or the terms of their advisory agreements. 

These inconsistencies included, among others: 

• calculating improper fee proration;

• charging asset-based advisory fees on holdings specifically excluded from this calculation method;

• providing clients with incorrect fee rates and not applying reduced rates where applicable; and

• failing to provide required rebates.

The Staff also identified situations where fees were inconsistent with services provided and instances where advisers retained fees paid in advance by clients who terminated their agreements before the conclusion of the billing period, when the services paid in advance were not fully rendered.

5. Compliance Programs Identifying and Addressing Fee-Related Issues

In addition, the Staff observed compliance programs that were ineffective or inadequately designed to prevent violations of the 1940 and the Advisers Act. In particular, written policies and procedures often failed to describe how advisers would accurately execute and oversee their various billing arrangements in a manner consistent with their fiduciary obligations, advisory agreements, and disclosures. The Staff found deficiencies concerning all types of billing arrangements, describing fee-related practices clearly and consistently, and monitoring for accurate fee billing.

The Risk Alert can be found here.