Client Alert: The SEC Examinations Staff Refocuses on Economic Conflicts of Interest
June 18, 2026
I. Introduction
On June 9, 2026, the SEC’s Division of Examinations issued a Risk Alert on investment adviser obligations related to economic conflicts of interest (the “Risk Alert”). While the alert does not offer any new information or recent developments, it comes on the heels of our recent SEC enforcement alert highlighting Chairman Atkins’ “back to basics” approach for the Enforcement Division. In continuing that strategy, this Risk Alert confirms this SEC regime remains focused on the blocking and tackling of fiduciary duty and investor harm. Attention to economic incentives, conflicts disclosure, and fee-billing accuracy remain top priorities, and funds and advisers should revisit their conflicts inventory, disclosures, and billing controls in light of the SEC Staff’s continued focus on these areas.
II. What the Staff Observed
The SEC Staff’s overarching observation is a familiar one: (i) advisers had economic conflicts that were undisclosed or disclosed in incomplete or misleading ways, (ii) adviser practices were inconsistent with their advisory agreements and disclosures, and (iii) compliance programs did not fully address those conflicts. Specific findings included:
- Cash management and sweep revenue. Advisers that swept client cash into interest-bearing accounts (including at affiliates) and received revenue for doing so omitted or misstated material information about revenue sharing with custodians and clearing broker-dealers as well as their incentives to recommend the highest-paying sweep vehicles. The staff specifically criticized disclosures stating the adviser “may” receive such revenue when it in fact did.
- Share class and other revenue conflicts. The Staff flagged selection of mutual fund share classes paying Rule 12b-1 fees to the adviser (as a dually registered broker-dealer), its affiliates, or its representatives where a lower-cost share class of the same fund was available, as well as undisclosed clearing-relationship termination fees and markups on clearing broker fees passed through to clients.
- Form ADV disclosures. Part 2A brochures contained compensation-related misstatements and failed to include appropriate disclosures, including incomplete disclosure of clearing-agency relationships.
- Fee calculations. Advisory fees were calculated in ways that did not align with Form ADV disclosures or written agreements (including renegotiated arrangements and addenda), such as prorating fees for mid-period deposits or withdrawals where the agreements did not provide for it.
- Compliance program gaps. Policies and procedures did not address all applicable billing arrangements (such as prepaid fees, householding reductions, and margin); disclosures, policies, and agreements contained conflicting fee information; and controls failed to test for calculation errors or to confirm that rebates and refunds were issued and that fees stopped on termination.
III. Practical Takeaways for Funds and Advisers
Building on the Staff’s observations, advisers should consider several near-term steps. As a starting point, firms should refresh their conflicts inventory by mapping every source of compensation, revenue, or other economic benefit the firm or its personnel receive in connection with recommendations — cash sweep revenue, custodian and clearing arrangements, revenue sharing, markups, and Rule 12b-1 and similar share-class economics — and confirming each is captured in current disclosures. For instance, in the private funds context, advisers that sweep uninvested commitments into affiliated deposit programs or money market vehicles that generate revenue for the adviser (or an affiliate) would face the same disclosure obligations the Staff flagged, and such advisers should take affirmative steps to ensure adequate disclosure in line with Staff guidance. More generally, where a conflict already exists and is being realized, permissive “may receive” formulations should be replaced with a clear statement that the adviser does receive the compensation at issue. There can be certainly situations in which conditional “may” disclosures are appropriate, especially as regarding potential conflicts, but advisers should use such language with care.
Firms should also check cross-document consistency, reconciling fee terms, direct-debit authority, proration, and householding across Form ADV, advisory agreements, fee addenda, and client-facing disclosures. Fee-billing controls warrant a parallel pressure test: confirming coverage of all billing arrangements in use (including prepaid fees, householding, and margin), testing for calculation errors, and validating that rebates, refunds, and fee shut-offs occur on termination. Finally, where the firm or its representatives receive 12b-1 or similar payments, the share-class selection process and related disclosure should be revisited to confirm that they account for the availability of lower-cost share classes of the same fund.
IV. Conclusion
The June 9 Risk Alert does not reshape adviser fiduciary obligations, but its message is pointed: the Staff continues to focus on economic conflicts, disclosure quality, and fee-billing accuracy, and expects advisers to do the same.
If you have questions about how these developments affect your advisory business, or if you would like assistance reviewing your enforcement readiness, Croke Fairchild’s Private Funds & Investment Management and Litigation & Investigations teams are available to help you assess your policies, prepare for potential SEC engagement, and develop strategies tailored to this new enforcement environment.
For questions about this alert, please contact: