What the SEC's Conflicts of Interest Risk Alert Found — and What Examiners Will Look for at Your Firm

TL;DR

• On June 9, 2026, the SEC Division of Examinations published a Risk Alert identifying recurring deficiencies in how RIAs identify, disclose, and manage economic conflicts of interest
• Five deficiency categories: conflict identification and disclosure, cash sweep conflicts, revenue sharing transparency, Form ADV gaps, and fee billing deviations from advisory agreements
• A concurrent August 4 enforcement action against an investment adviser confirmed the Division is actively converting Risk Alert observations into formal charges
• A Risk Alert is a roadmap — what EXAMS publishes as a deficiency list will appear in your examination

In June 2026, the SEC published a document telling you exactly what examiners will look for the next time they walk into your firm.

The SEC Division of Examinations’ June 9, 2026 Risk Alert on investment adviser economic conflicts of interest was not a surprise. The SEC flagged conflicts of interest as a 2026 Examination Priority. What the Risk Alert added was specificity: five recurring deficiency categories drawn from actual examinations, with enough detail that a compliance officer can treat it as a checklist.

Two months later, on August 4, a concurrent enforcement action against an investment adviser for conflicts of interest and compensation disclosure failures confirmed the Division wasn’t just publishing observations — it was building cases from them.

Here is what the Risk Alert found, why it matters, and what to check before your next exam cycle.

What a Risk Alert Actually Is — and Why This One Matters

A Risk Alert is not a rule. It does not create new legal requirements. What it does is tell you what examiners are finding in practice — which means it tells you what they will be looking for when they arrive at your firm.

The pattern is consistent: themes in one year’s Examination Priorities show up in the Risk Alert the following cycle, which generates enforcement actions the cycle after that. The June 2026 Risk Alert sits squarely in the middle of that sequence. The 2026 Exam Priorities identified economic conflicts of interest as a focus area. The Risk Alert documented what examiners observed. The August enforcement action confirmed the path from observation to consequence.

The legal obligations cited in the Risk Alert are not new. Investment advisers have a fiduciary duty under the Investment Advisers Act to act in clients’ best interests, and that duty includes identifying, disclosing, and managing conflicts of interest. What the Risk Alert identifies is where advisers are routinely falling short of obligations that already exist.

The Five Deficiency Categories

1. Conflicts That Were Never Identified or Disclosed

The most pervasive category in the Risk Alert: advisers that had conflicts of interest that were either not identified internally or not disclosed to clients.

Examiners found conflicts that were:

• Undisclosed entirely — the adviser had an arrangement generating revenue from client recommendations and never mentioned it in Form ADV or client communications
• Incompletely disclosed — the conflict was mentioned but described in a way that omitted the mechanism (e.g., noting an affiliation without explaining how that affiliation generates compensation)
• Described in a potentially misleading manner — disclosure language that technically referenced the conflict but framed it in a way that a reasonable client would not have understood its nature

The operative standard is not mentioning the conflict. It is disclosing it in enough detail that a client can evaluate its potential effect on the advice they receive. One-sentence boilerplate in Form ADV Part 2A that references “potential conflicts” without specifics is not sufficient.

2. Cash Management Recommendations

Cash sweep programs were a specific focus in the Risk Alert — and the pattern examiners found was predictable.

An adviser recommends that a client hold uninvested cash in a sweep program. The sweep program generates revenue for the adviser — either because it sits at an affiliated institution, or because the adviser receives a revenue share based on balances. The conflict is real: the adviser has a financial incentive to recommend this specific program over alternatives that might yield better returns for the client.

Examiners cited advisers that:

• Recommended sweep programs at affiliated banks without disclosing the revenue relationship
• Disclosed the existence of revenue sharing but omitted material information about how much the adviser received or the mechanics of how the sharing worked
• Failed to compare the recommended sweep option against alternatives available to the client

If your firm uses a cash sweep program of any type, this category belongs on your next conflicts review checklist. The question is not just whether the conflict is disclosed — it is whether the disclosure gives the client enough information to understand it.

3. Revenue Sharing Arrangements

Beyond cash sweeps, the Risk Alert identified broader deficiencies in how advisers disclosed revenue sharing with broker-dealers, custodians, and other third parties.

The deficiency pattern: an adviser receives economic benefits from a third party for directing client business — clearing, custody, order flow, referrals — and does not fully disclose that arrangement in Form ADV or client-facing materials. Examiners found advisers that disclosed a relationship with a custodian or broker-dealer without disclosing the economic benefit the arrangement provided to the adviser, leaving clients unable to evaluate whether that relationship affected the advice they received.

For investment advisers that have negotiated any form of revenue sharing with a custodian, any clearing arrangement that generates compensation beyond pass-through costs, or any referral arrangement where the adviser benefits from directing client business, the question is whether Form ADV Part 2A and the advisory agreement together give a client a complete picture.

4. Form ADV Brochure Deficiencies

Form ADV is where conflicts are supposed to live — and examiners found it routinely inadequate.

The specific deficiencies cited:

• Financial industry affiliations not fully disclosed, particularly relationships with affiliated broker-dealers or investment companies where the adviser (or its personnel) had a financial interest
• Compensation agreements with affiliates that created material conflicts but were not described in the Part 2A brochure
• Economic benefits received for recommending specific products, services, or account types — including situations where third parties provided the adviser or its supervised persons with non-cash economic benefits for recommending specific products

The standard here is not disclosure as a formality. The fiduciary duty requires that disclosures be complete, accurate, and presented in a way that clients can understand. Form ADV brochures that describe conflicts in generic language without naming the specific arrangements, the nature of the compensation, or the potential effect on advice are deficient even if they technically contain disclosure language.

5. Compliance Programs That Don’t Find Their Own Conflicts

The final category is the one that compounds all the others: compliance programs that were not designed to identify new conflicts as business relationships changed.

Examiners found that a significant portion of the undisclosed conflicts they identified were not the result of willful concealment — they were conflicts that had developed over time and were never caught by the compliance function. A new custodian relationship, a change in revenue sharing terms, a new product the firm began recommending — each created a conflict that the compliance program did not surface.

The implication for annual reviews: they have to actually test whether the conflicts you have documented in Form ADV still reflect your current business arrangements, and whether new arrangements have created conflicts not yet captured. A static Form ADV that was accurate when filed and never updated as the business evolved is a deficiency waiting to be found.

The August 4 Enforcement Action

The June Risk Alert was followed on August 4 by an SEC enforcement action against an investment adviser for conflicts of interest and compensation disclosure failures — simultaneously with a separate examination announcement — that the National Law Journal described as the Division sending a clear signal that Risk Alert themes are being converted into charges.

The combination is intentional. A Risk Alert followed by an enforcement action at the same time does two things: it confirms that examiners are not just observing but acting on what they find, and it tells the industry that the observation period is over. Firms that read the June Risk Alert and put remediation on a long timeline should revisit that judgment.

What the Risk Alert Was Not About

The June Risk Alert did not address AI-generated advice conflicts — that is a separate examination theme under the 2026 Exam Priorities and the subject of a different advisory guidance track. It also did not address the marketing rule or testimonials — those were covered in a separate 2026 deficiency letter on marketing rule violations. The conflict themes in this Risk Alert are the traditional economic conflict categories that have been examined for years and continue to generate findings.

So What? Three Things to Do Before Your Next Examination

1. Run a conflicts inventory against your current business arrangements.

Pull your Form ADV Part 2A Items 5, 10, 11, and 14 — the sections covering fees, other financial industry activities, other business activities, and client referrals. For each item, ask: is this still accurate? Is there any new arrangement that generates economic benefit for the firm or its supervised persons from a client recommendation that isn’t captured here?

The Risk Alert’s most consistent finding was conflicts that existed but weren’t caught. The conflicts inventory is the mechanism to catch them.

2. Test your cash management and revenue sharing disclosures for substance.

Read your disclosure language about sweep programs and revenue sharing the way an examiner would — not as the person who wrote it, but as a client trying to understand whether your advice is independent of your economic interests. If the answer requires a close reading of an appendix or a follow-up call, the disclosure probably needs work.

3. Design a conflicts testing procedure into your annual compliance review.

The Risk Alert specifically cited compliance programs that couldn’t identify their own conflicts. An annual review that checks whether existing disclosures are current is not sufficient if the review doesn’t also test whether new conflicts have developed. Build a formal conflicts testing step into your CCO’s annual review cycle — one that requires sign-off from business line heads on whether new compensation arrangements have been entered into since the last review.

If your examination is scheduled in the next six months, the June Risk Alert is the most specific guidance the Division has published about what they plan to find. The five deficiency categories are not theoretical — they came from examinations conducted at firms that assumed their disclosures were adequate.

The advisers whose findings became the Risk Alert probably thought the same thing.

For related SEC examination topics, see our coverage of the SEC’s 2026 Examination Priorities for investment advisers and broker-dealers, the SEC’s back-to-basics fraud enforcement shift, and AI-washing enforcement against investment advisers.

Sources:

• SEC Division of Examinations Risk Alert — Economic Conflicts of Interest (King & Spalding, June 2026)
• SEC Risk Alert on Investment Adviser Conflicts of Interest (Morrison Foerster, June 2026)
• SEC Enforcement Action, Examinations Risk Alert Signal Continued Focus on Conflicts of Interest (Law.com, August 4, 2026)
• KPMG Regulatory Alert — SEC Adviser Conflicts of Interest, Compensation Disclosure
• SEC Division of Examinations Publishes Risk Alert on Economic Conflicts of Interest (Greenberg Traurig, June 2026)