On June 9, 2026, the SEC’s Division of Examinations published a risk alert on what its examiners have found when they look at the money an adviser makes from something other than its stated advisory fee. Examinations Observations of Investment Adviser Obligations Related to Economic Conflicts of Interest, Division of Examinations Risk Alert (June 9, 2026), available at sec.gov. Economic conflicts have been on the Division’s priority list every year since 2021, and the staff has written on advisory fees twice before, in 2018 and 2021. This alert is broader. It covers cash sweep revenue, mutual fund and money market share classes, custodial credits, margin and clearing markups, the two Form ADV items where those arrangements must be disclosed, and the fee calculation and refund errors that keep turning up in the same examinations. The staff groups what it found into three failures: conflicts that were not disclosed or were disclosed incompletely or misleadingly, practices that did not match the advisory agreement or the disclosure, and compliance programs that did not address the conflicts at all. It also says, in the conclusion, what the findings usually lead to: advisers returning money to clients.
Cash sweeps and money market share classes
The first section is about programs that move a client’s uninvested cash into an interest-bearing account, sometimes at an affiliate. An adviser that earns revenue for recommending the program has a conflict, and the staff found three ways advisers handled it badly. Some did not disclose the revenue at all, including revenue from a custodian based on the cash balances clients held there and the incentive to choose the sweep vehicle that paid the adviser the most. Some disclosed it with the word “may,” telling clients the adviser “may” receive revenue from a third-party bank sweep program when it was in fact receiving it; the Commission’s 2019 fiduciary interpretation says that wording is inadequate for a conflict that already exists, and the alert quotes it. Some omitted the cost side, failing to tell clients that cash balances were subject to the adviser’s asset-based fee or that the fee could produce a negative return on cash, which in some cases it did. The same pattern appeared in money market fund share class selection: advisers whose only cash recommendation was a higher-cost money market fund that shared revenue with them, without disclosing that lower-cost shares of the same fund were available and paid the adviser nothing.
Other revenue: share classes, custodial credits, margin, and clearing markups
The second section revisits the mutual fund share class problem that produced the Commission’s 2018 self-reporting initiative and $125 million in refunds from 79 advisers the following year. The staff still finds advisers, typically dual registrants or firms whose representatives are also registered representatives, selecting share classes that pay 12b-1 fees to the adviser or its affiliates when a lower-cost class of the same fund was available to the client, and not disclosing the benefit. It then lists other economic benefits that went undisclosed: custodial credits (credits a custodian gives the adviser against the adviser’s own costs); interest markups on margin loans collected by an affiliated broker-dealer; markups on the transaction fees a clearing broker charges; credits the adviser received for keeping client assets at an unaffiliated broker-dealer, along with the termination fee the adviser would owe if it moved them; and fees the adviser added on top of what the clearing broker charged. None of these arrangements is prohibited. Each is a conflict that the fiduciary duty requires the adviser to eliminate or to disclose fully enough that the client can give informed consent.
Where it belongs in Form ADV
The alert points to two items in the Part 2A brochure. Item 10 requires disclosure of financial industry activities and affiliations; the staff found advisers that omitted compensation agreements with affiliates, such as an affiliated broker-dealer that benefits from the revenue a clearing firm earns on advised clients. Item 12 requires disclosure of how the adviser selects broker-dealers for client transactions and judges the reasonableness of their compensation; the staff found Item 12 disclosures that were incomplete or inconsistent with disclosures elsewhere, including advisers with revenue sharing arrangements with clearing firms that did not disclose all material facts about them. An adviser reviewing its brochure against this alert should read those two items against each other and against the advisory agreement, because inconsistency between documents is itself one of the findings.
Fees that did not match the agreement
The fee calculation findings will be familiar to anyone who read the 2018 and 2021 alerts, and the staff’s point is that they have not gone away. Advisers prorated fees for mid-period deposits and withdrawals when neither the agreement nor the disclosure said they would. They charged asset-based fees on holdings the agreement excluded, such as initial cash inflows and fixed income. They applied the wrong rate, failed to combine a family’s related accounts so that the total qualified for a lower rate, and failed to identify fixed income mutual funds as fixed income assets entitled to a lower rate. They did not rebate transaction fees that the agreement said clients would not incur. They charged for services not provided: wealth management fees after the responsible personnel left and the accounts were never reassigned, fees on inactive accounts holding mostly cash that clients had asked in writing to close, and duplicate fees after internal asset transfers. And they did not refund prepaid fees to clients who terminated mid-period, including where the client had not sent a written refund request, which the staff treats as no excuse.
What the compliance program was missing
The last section ties the findings to the Compliance Rule (Rule 206(4)-7), which requires written policies reasonably designed to prevent violations of the Advisers Act. The written policies did not say how the adviser would carry out its own billing practices accurately and consistently with its agreements and disclosures. They did not cover every billing arrangement in use, such as prepaid fees, householding, and margin. The policies, the disclosures, and the signed agreements described the same fee differently, including on whether the adviser could withdraw its fee directly from the client’s account, and some fee schedules were too complicated to reconcile. And there were no controls to monitor the accuracy of every type of fee assessed, to test for calculation errors such as manual input mistakes in prorated fees, or to confirm that terminated clients actually received their refunds and were not still being billed.
What advisers should do now
The alert closes by noting that advisers have improved their disclosures, billing, and compliance programs in response to examinations, which is a polite way of saying that the staff expects the rest to do it before the examination rather than after. The work is concrete. List every source of revenue or benefit other than the advisory fee, including anything an affiliate receives because of client accounts, and confirm each one is disclosed in the brochure as a present conflict rather than a possible one. Read Items 10 and 12 of the Form ADV brochure against each other and against the agreement. Pull a sample of client bills and recompute them from the agreement, paying attention to prorating, excluded assets, rates and breakpoints, and refunds on termination. Then write the billing procedures to match what the firm actually does, and add a control that checks the output. An adviser that finds an overcharge should fix it and refund it now; the staff’s own account of these examinations is that the money goes back to clients either way.
For more information. Evans Law, PC advises investment advisers on Form ADV disclosure, fee and billing practices, conflicts of interest, and examination preparation. See our Investment Adviser Services page. To review your fee arrangements and disclosures against this risk alert, contact Evans Law, PC.