SEC Examiners Find Undisclosed Revenue Sharing, Inconsistent Fee Billing at RIAs
The U.S. Securities and Exchange Commission’s Division of Examinations issued a risk alert detailing a pattern of undisclosed conflicts of interest it has observed during examinations of registered investment advisers – findings that carry direct compliance implications for RIAs and dually registered broker-dealers active in the alternative investment distribution channel.
The alert, published June 9, describes examination findings across four categories: undisclosed revenue sharing on cash management recommendations, conflicts tied to mutual fund share class selection, misleading or incomplete Form ADV disclosures, and fee billing practices inconsistent with advisory agreements.
The staff said its observations have led advisers to return money owed to clients in connection with fee billing and calculation errors, and to improve the accuracy of their disclosures and billing practices.
Cash Sweep Revenue Sharing
SEC examiners found advisers recommending cash sweep programs – arrangements that automatically move uninvested client cash into interest-bearing accounts – without disclosing that they received revenue from those arrangements, in some cases from custodians or clearing broker-dealers based on client cash balances. Examiners also found advisers that disclosed such arrangements by stating they “may” receive revenue rather than acknowledging the conflict existed, and advisers that recommended only higher-cost money market share classes carrying revenue sharing arrangements without disclosing that lower-cost alternatives were available.
The Cambridge Investment Research Advisors enforcement action, resolved in March 2025, illustrates where that pattern leads. The SEC fined CIRA $15 million after finding the firm had invested client assets in mutual funds and money market sweep vehicles that generated revenue sharing payments to an affiliated broker-dealer, rather than lower-cost alternatives that would have yielded less or no revenue sharing – a nearly identical fact pattern to what examiners described in this week’s alert.
Fee Billing Inconsistencies
Examiners also found advisers charging fees inconsistent with their advisory agreements and Form ADV disclosures – applying fees to assets explicitly excluded from billing calculations, failing to apply reduced rates for cash and fixed income assets, charging fees on inactive accounts receiving no advisory services, and in some instances billing the same fees more than once due to internal asset transfers. Some advisers did not issue refunds to clients who terminated before the end of a prepaid billing period.
The fee billing findings echo a February 2025 enforcement action against One Oak Capital Management, in which the SEC charged the firm and a representative with failing to provide clients with completed fee schedules before charging advisory fees – a violation the SEC characterized as a breach of fiduciary duty under the Investment Advisers Act of 1940.
The SEC’s fiscal year 2026 examination priorities, published last November, specifically flagged conflicts of interest associated with dually registered broker-dealers and advisers that recommend complex, illiquid, or higher-cost products – an explicit reference to the alternative investment structures at the center of the broker-dealer and RIA distribution ecosystem. Monday’s alert represents the examinations staff’s report from the field on what it is actually finding when it looks.
The SEC division said it encourages advisers to review and refine their billing policies and disclosures on a routine basis, and to identify and address new conflicts of interest as they arise.
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