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(Article from Registered Funds Regulatory Update, July 2026)

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On June 9, 2026, the Staff of the SEC’s Division of Examinations published a Risk Alert summarizing examination observations regarding SEC-registered investment advisers’ fiduciary obligations around economic conflicts of interest. The Risk Alert reiterates that, as fiduciaries, advisers must either eliminate conflicts of interest or provide full and fair disclosure of conflicts that might incline them, consciously or unconsciously, to render advice that is not disinterested. The Staff stated that the Alert is intended to help advisers develop effective compliance programs and disclosures addressing economic conflicts.

The Staff identified recurring issues in five areas:

• Cash management recommendations: Advisers received revenue from client cash sweep or other cash management arrangements, sometimes involving affiliates, without fully and fairly disclosing revenue sharing, incentives, fees, expenses, or lower-cost alternatives.
• Other revenue opportunities: Advisers failed to disclose or adequately explain economic benefits tied to recommendations, including mutual fund share-class compensation, custodial credits, transaction markups, margin-related compensation, termination fees, and other adviser or affiliate benefits.
• Form ADV fee and conflict disclosures: The Staff observed compensation-related misstatements and omissions in Form ADV Part 2A brochures, including disclosures that were incomplete, misleading, outdated, or inconsistent with actual business practices.
• Fees deviating from agreements or disclosures: Advisers charged fees inconsistent with advisory agreements or disclosures, including billing for services no longer provided, failing to refund prepaid fees after termination, or not confirming that terminated accounts were no longer charged.
• Compliance program deficiencies: Adviser policies and procedures often did not adequately address fee billing practices, fee calculation accuracy, refunds and rebates, cash management arrangements, or other economic conflicts specific to the adviser’s business model.

The Risk Alert emphasizes that advisers should identify all direct and indirect economic benefits, ensure disclosures reflect actual practices rather than hypothetical conflicts, and implement tailored controls to test fee billing and conflict disclosures on an ongoing basis.

Examinations Observations of Investment Adviser Obligations Related to Economic Conflicts of Interest (June 9, 2026), available at: https://www.sec.gov/files/observations-ia-obligations-related-economic-conflicts-interest-060926.pdf.