SEC Warns Investment Advisers: Economic Conflicts Remain a Major Examination Priority

In a June 9, 2026 Risk Alert, the SEC’s Division of Examinations summarized recurring deficiencies identified during examinations of registered investment advisers, including issues involving cash sweep programs, share class selection, Form ADV disclosures, fee billing practices, and compliance controls.

See SEC Division of Examinations, Examinations Observations of Investment Adviser Obligations Related to Economic Conflicts of Interest (June 9, 2026)

👉🏽https://www.sec.gov/files/observations-ia-obligations-related-economic-conflicts-interest-060926.pdf

The Alert repeatedly emphasizes that examiners are focused on the “economic incentives” that may influence an adviser’s recommendations, investment selections, or account management decisions. In other words, the SEC wants to understand how firms make money and whether clients fully understand the conflicts that flow from those arrangements.

The SEC Is Looking Beyond Disclosure

Many advisers continue to treat conflicts as a disclosure issue. The SEC increasingly views conflicts as an operational issue that needs to be actively addressed.

Throughout the Risk Alert, examiners identified situations where disclosures were incomplete, inconsistent with actual practices, or failed to adequately describe existing compensation arrangements. Several firms disclosed that they “may” receive certain forms of compensation even though they were already receiving those payments.

When a conflict exists today, disclosure should describe the conflict as it exists today. Examiners appear increasingly skeptical of hypothetical language that obscures present economic incentives.

The broader theme running through the Alert is straightforward: disclosures must accurately reflect reality.

Cash Sweep Programs Continue to Draw Scrutiny

One of the most significant sections of the Alert focuses on cash sweep arrangements.

Examiners identified advisers receiving compensation tied to client cash balances while failing to adequately explain those incentives to clients. In some cases, advisers received revenue from custodians based on deposits. In others, advisers benefited from recommending affiliated cash-management products.

When an adviser earns additional revenue based on where client cash is held, that incentive can influence recommendations. Clients should understand that relationship before making investment decisions.

Share Class Conflicts Remain a Focus

The SEC also continues to encounter issues involving mutual fund share class recommendations.

According to the Alert, some advisers failed to adequately disclose compensation associated with recommending higher-cost share classes. Others did not sufficiently explain that lower-cost alternatives were available.

Whenever an adviser benefits financially from recommending one investment option over another, the SEC expects clear disclosure and informed client consent.

Billing Errors Continue to Generate Examination Findings

Perhaps the most practical lesson from the Risk Alert involves fee billing.

Examiners identified firms charging fees that differed from advisory agreements, failing to apply negotiated discounts, improperly prorating fees, assessing duplicate fees, and failing to return unearned fees after account termination.

The Alert even describes situations where clients continued paying advisory fees despite no longer receiving advisory services.

The SEC increasingly treats billing controls as a fiduciary obligation and a compliance obligation.

Compliance Programs Must Reflect Reality

The most important observation in the Alert may be the SEC’s conclusion that many advisers had not implemented policies and procedures “reasonably designed to prevent violations” of the Advisers Act.

The problem was that the policies failed to reflect how the business actually operated.

Examiners found procedures that did not account for compensation arrangements, did not adequately address billing practices, or lacked meaningful testing and oversight mechanisms.

The SEC wants evidence that firms are actively monitoring conflicts, testing controls, identifying problems, and correcting deficiencies.

Key Takeaway

The central lesson from the SEC’s latest Risk Alert is that economic conflicts remain one of the most important areas of regulatory scrutiny for investment advisers.

The Division of Examinations is not simply reviewing Form ADV disclosures. It is evaluating whether a firm’s disclosures, compensation arrangements, billing practices, and compliance controls work together to address the economic incentives embedded within the business.

The SEC’s closing observation is perhaps the most important. Economic conflicts of interest “continue to be an area that warrants routine review.”

Firms should assume examiners are taking that statement seriously. And they should prepare accordingly.

Questions About SEC Examinations or Adviser Conflicts?

The SEC’s latest Risk Alert provides a useful roadmap for where examination staff are focusing today. Advisers should assume these observations will continue to shape examination priorities, deficiency letters, and, in some cases, enforcement referrals.

If your firm is evaluating compensation arrangements, cash sweep programs, share class disclosures, fee billing practices, or broader fiduciary duty obligations, feel free to contact me.

Braeden Anderson

Partner, Gesmer Updegrove LLP