The SEC’s Division of Examinations is calling renewed attention to economic incentives that may influence the advice investors receive. In a June 2026 Risk Alert, the division identified deficiencies involving compensation arrangements, cash-management recommendations, investment selection, client disclosures and advisory-fee calculations. The findings provide a timely compliance checklist for registered investment advisers, including hybrid firms and financial professionals who also operate through broker-dealers.
SEC examiners found instances in which advisers received revenue based on client cash held with custodians or through particular sweep programs without fully disclosing the arrangement. Some advisers recommended cash vehicles that generated greater compensation for the firm, while others used language stating that they “may” receive revenue even when the compensation arrangement already existed. The SEC cautioned that describing an existing conflict as merely possible may prevent clients from understanding the incentive well enough to provide informed consent.
Examiners also identified advisers that selected higher-cost money-market or mutual-fund share classes that paid revenue to the adviser, an affiliated broker-dealer or an individual adviser representative when lower-cost classes of the same fund were available. Other deficiencies involved undisclosed benefits from custodial arrangements, margin lending, transaction markups and clearing relationships. In some cases, Form ADV disclosures omitted financial affiliations or did not fully explain revenue-sharing arrangements.
Although many of the SEC’s examples involved cash-management programs and mutual funds, the underlying principles have wider relevance when advisors evaluate alternative investments. Nontraded REITs, nontraded BDCs, interval funds, tender-offer funds and private placements may offer multiple share classes or compensation arrangements, with differences in upfront commissions, dealer-manager fees, servicing payments and ongoing expenses. When compensation varies among otherwise comparable investments, advisors and their firms should be able to explain the economic incentive, the costs borne by the client and why the recommended product or share class is appropriate.
The issue is especially important for dually registered professionals. An advisor may act under the Investment Advisers Act for one account while serving as a registered representative subject to Regulation Best Interest for another. The applicable legal framework may differ, but both the SEC and FINRA focus on whether financial incentives place the firm’s or professional’s interests ahead of the client’s. FINRA has also reminded broker-dealers that recommendations involving private placements require a reasonable investigation of the investment’s risks, rewards and costs, along with consideration of reasonably available alternatives.
The SEC’s alert went beyond disclosure deficiencies. Examiners found advisory fees that did not match client agreements or Form ADV disclosures, including fees charged on excluded assets, incorrect rates, missed householding discounts, duplicative charges and fees assessed for services that were not provided. Some firms also lacked adequate procedures for monitoring billing accuracy and reconciling conflicting information across advisory agreements, compliance policies and client disclosures.
Economic conflicts are not necessarily prohibited, but advisers have a fiduciary obligation to provide full and fair disclosure of material conflicts and obtain informed client consent. If a conflict cannot be adequately disclosed, the SEC states that the adviser should eliminate or sufficiently mitigate it. For advisory firms, the Risk Alert is a reminder to review actual compensation practices—not simply standard disclosure language—and verify that Form ADV, client agreements, billing systems and supervisory procedures all describe and address those practices consistently.
