From time to time, the SEC's Division of Examinations will issue an alert to the industry regarding common deficiencies identified during their examinations of investment advisers. On June 9, 2026, the SEC published its most recent risk alert (the “Risk Alert”) focusing on economic conflicts of interest. This is an area that was specifically identified in the Staff’s 2026 Examination Priorities (“[t]he Division will review investment advice and related disclosures provided to clients for consistency with their fiduciary obligations, such as: (1) the impact of advisers’ financial conflicts of interest….”). The alert focuses on reminding advisers of their obligations to identify, disclose, and manage economic conflicts of interest, a longstanding area of regulatory scrutiny that continues to generate enforcement risk.

The Risk Alert identifies five recurring problem areas:

1. Cash Sweep and Cash Management Programs. Advisers recommended cash sweep vehicles held at affiliated parties that generated revenue for the advisers or their affiliates without clearly disclosing that conflict. SEC staff specifically called out examples where advisers received compensation tied to client cash balances, incentives existed to recommend higher yielding (to the adviser) sweep options, and disclosures often failed to explain revenue received by the adviser and the impact of fees on investor returns (including potential negative returns).

2. Mutual Fund Share Class Selection. Advisers selected higher-cost share classes of mutual funds that paid 12b-1 fees or revenue-sharing to the adviser when lower-cost share classes of the same fund were available. SEC staff also flagged undisclosed economic benefits to advisers related to custodial credits, margin loans, and transaction markup fees.

3. Incomplete or Misleading Form ADV Disclosures. Form ADV filings contained vague, inconsistent, or incomplete disclosures regarding financial industry affiliations (Item 10) and broker-dealer selection and compensation practices (Item 12), reducing transparency on the full scope of advisers’ economic incentives.

4. Fee Billing Inconsistencies and Overcharges. SEC staff observed systemic billing issues where advisers charged fees that deviated from their advisory agreements and disclosures. Common issues included improper proration methods, billing on excluded asset types, charging for services no longer being provided, double-billing, and failure to refund prepaid fees after account terminations. This subject has been a focus of recent enforcement actions, including, for example, where a private fund adviser was found to have been incorrectly calculating management fee offsets for transaction fees received by the adviser from portfolio companies.

5. Compliance Program Gaps. SEC staff identified compliance programs that lacked the specificity needed to address all active billing arrangements, that failed to clearly and consistently describe advisory fee-related practices, and that did not describe adequately ongoing monitoring and testing to ensure accurate fee-billing.

This Risk Alert signals that the Division of Examinations will continue to prioritize economic conflicts of interest in upcoming exam cycles. Advisers should expect examiners to closely scrutinize whether disclosures accurately and specifically describe existing conflicts, whether fee billing practices conform to advisory agreements and Form ADV in all respects, and whether compliance programs include operational procedures and testing mechanisms to identify errors before they become regulatory issues.

The full Risk Alert is available on the SEC’s website: SEC Conflicts of Interest Risk Alert.