Compliance Insight • July 2026

Navigating Conflicts of Interest:
A Regulatory Lens

The SEC Division of Examinations’ June 9, 2026 Risk Alert on investment adviser conflicts is a good reminder that examiners do not expect advisers to operate without conflicts. That is not realistic. What they do expect is for firms to know where their conflicts are, explain them clearly to clients, and have controls in place to make sure actual practices match the disclosures.

Economic Conflicts and Risks

The Alert focuses on economic conflicts—situations where an adviser, its affiliates, or its personnel may receive a financial benefit from a recommendation or arrangement. These can come up in many places, including cash sweep programs, revenue-sharing arrangements, mutual fund and money market fund share classes, custodial credits, margin lending, affiliated broker-dealer relationships, and billing practices.

Transparency and Disclosures

In many of the SEC’s observations, the problem was not simply that the adviser received compensation or some other economic benefit. The bigger issue was that clients were not clearly told about it, or the disclosure was too vague. For example, saying a firm “may” receive compensation can be a problem if the firm actually does receive it.

Billing and Error Control

The Alert also highlights billing as an area where small errors can create big compliance issues. Examiners observed incorrect fee rates, missed breakpoints, duplicative fees, billing on assets that should have been excluded, and failures to refund unearned prepaid fees.

Practical Takeaways for Compliance Teams Today

For compliance teams, the practical takeaway is to step back and look at the full picture. Do the advisory agreement, Form ADV, fee schedule, custodial arrangements, billing system, and client statements all line up? If they do not, that is exactly the type of issue exam staff may focus on.

The bottom line is simple: conflicts need to be identified, disclosed, monitored, and tested. Advisers that can clearly explain how they are paid, how clients are charged, and how their controls support those disclosures will be in a much better position during an examination.

Map your money flows: Build and maintain a clear inventory of every way the firm and its affiliates earn revenue from client relationships, products, and service providers.

Priority Tips

Make disclosures match reality: Line up Form ADV, advisory agreements, fee schedules, custodial terms, and billing system settings so they describe what actually happens in practice..

Stress-test billing and controls: Regularly test fee calculations, exclusions, and refunds, and document how your controls detect and correct errors tied to conflicts.