SEC Risk Alert: Undisclosed Economic Conflicts of Interest
June 12, 2026
What happened?
On June 9, 2026, the SEC Division of Examinations published the first Risk Alert of 2026. The Risk Alert is aimed at investment adviser conflicts of interest from compensation, revenue, or other economic benefits. Examiners observed economic conflicts of interest that were undisclosed, or the disclosures were incomplete or misleading. Additionally, the staff identified compliance programs that did not fully address economic conflicts of interest and risks.
The Risk Alert paid special attention to cash sweep programs and share class selection for mutual funds and money market funds. Investment advisers are now on notice to disclose sources of revenue or face the SEC’s Division of Enforcement.
Cash Management Recommendations – Advisers that receive revenue in exchange for cash management recommendations, such as recommending interest bearing accounts at affiliated entities, must fully and fairly disclose the conflict. The staff observed the following common failures:
- Fees that were inconsistent with advisory agreements and/or disclosures;
- Compliance programs that did not fully address economic conflicts of interest; and
- Disclosures that were misleading or omitted material information.
Examples of cash management recommendations that were not adequately disclosed included:
- Revenue sharing arrangements with custodians based on the cash balances clients held with those custodians.
- Cash sweep vehicles that resulted in higher compensation to the adviser.
- Omitting disclosure that client cash balances were subject to the adviser’s asset-based fees and/or disclosure that those fees would impact investment returns.
- Failure to disclose that the money market fund share class was higher-cost and revenue sharing agreements with the adviser were not disclosed.
- Failing to disclose that lower-cost shares of the same money market fund were available outside of the revenue sharing arrangement.
Conflicts From Other Revenue Opportunities – Mutual fund share classes that paid 12b-1 fees to the adviser and other economic benefits were also found to lack necessary disclosures by the staff. Examples that lacked full and fair disclosure included:
- Economic benefits, such as 12b-1 fees, the adviser received for recommending the mutual fund share class.
- Revenue received from interest rate mark-ups on margin loans from affiliated broker-dealers.
- Credits from custodial and clearing relationships for assets maintained at unaffiliated broker-dealers that would incur termination fees if moved.
- Marking up clearing broker-dealer’s fees or assessing additional fees and expenses to clients that were not charged by the clearing broker-dealer.
ADV Disclosures for Fees and Economic Conflicts of Interest – ADV Part 2A requires disclosures of conflicts of interest related to compensation arrangements. The following misstatements and omissions were observed:
- Item 10, financial industry activities and affiliations – requires full disclosure of compensation agreements with affiliates, including affiliated broker-dealers.
- Item 12, Brokerage Practices – requires disclosure of the factors considered in selecting broker-dealers and determining the reasonableness of commissions and expenses. SEC staff observed failures to disclose revenue sharing arrangements and/or incomplete or inconsistent statements when compared to other disclosures of the firm.
Fees Deviating from Advisory Agreements and Disclosures – The staff also observed fee billing that was inconsistent with disclosures and/or agreements. This longstanding examination priority had very familiar examples in the Risk Alert:
- Failure to calculate fees consistent with disclosures and agreements, such as:
- Improper proration
- Billing on excluded assets
- Assessing the incorrect fee
- Misclassifying fixed income assets that were subject to a lower fee
- Failing to rebate or apply a fee discount
- Failure to calculate fees consistent with services actually provided, such as:
- Charging unearned advisory fees for non-serviced accounts
- Billing on inactive accounts, terminated accounts, and/or cash
- Duplicative billing
- Refunding unearned fees, such as:
- Billing in advance on an account that terminated prior to the end of the billing period
- Refusal to refund because clients did not provide written notice that they were seeking a refund upon termination.
Compliance Programs Identifying and Addressing Fee-related Issues – Lastly, the staff observed instances of written policies and procedures that were reasonably designed or effectively implemented to meet the firm’s obligations, advisory agreements, or disclosures. The following examples were cited:
- Policies and procedures that did not address all types of billing arrangements, such as prepaid fees, fee reductions, householding of accounts, and margin on accounts.
- Failure to describe advisory fee-related practices clearly and consistently across agreements, disclosures, and policies and procedures.
- Lack of monitoring for accurate fee-billing, such as:
- Monitoring accuracy for every type of fee
- Completing tests to identify errors
- Confirming rebates and refunds were issued for terminated accounts
What does this mean for me?
This Risk Alert is the third one aimed at fee and expense issues since 2018, see here and here, and further cements fees and expenses as a cornerstone of compliance programs. Make no mistake, the strength of your compliance program will be judged on its oversight of advisory fees and economic conflicts of interest.
The Risk Alert also pointed to familiar issues, such as mutual fund share class review, accurate disclosure, and scrutiny of the word “may” when disclosing a conflict that does exist. Chairman Atkins has stressed that the SEC will focus its enforcement actions on fraud and actual harm to investors. Compliance failures from economic conflicts of interest are where those enforcement actions begin.
If you have questions or need guidance to understand what this Risk Alert may mean for your firm’s compliance practices, contact us. Fairview is here to help.
