The SEC's New Risk Alert Just Told You What Examiners Are Writing Down About Your Fee Disclosures

TL;DR: On June 9, 2026, the SEC's Division of Examinations published a Risk Alert on economic conflicts of interest at registered investment advisers, and one day earlier the agency fined Phoenix-based Foundations Investment Advisors and its former CEO $2.1 million for hiding three conflicts from 25,000 clients. Two months later, the SEC charged New York private fund manager Adit Ventures Management with defrauding investors in pre-IPO deals involving SpaceX and Klarna stock. If you run an RIA, a private fund, or you're raising a Reg D fund right now, all three actions point at the same failure: undisclosed economic incentives that examiners can now find with routine document requests, not forensic accounting.

The SEC's Division of Examinations published a Risk Alert titled "Examinations Observations of Investment Adviser Obligations Related to Economic Conflicts of Interest" on June 9, 2026, cataloging the disclosure failures its staff keeps finding when they walk into an adviser's office according to the SEC. The day before, the Commission settled charges against Foundations Investment Advisors, a $10 billion Phoenix-based RIA, and its former CEO Bryon Rice, for exactly the kind of conflicts the alert describes. Two months later, on August 10, 2026, the SEC filed a fraud complaint against Adit Ventures Management, a New York private fund adviser that allegedly overcharged clients on pre-IPO share purchases and pledged fund assets as collateral for a personal line of credit. Three fact patterns, one common thread: the SEC treats undisclosed economic incentives as its default enforcement target this year, and it doesn't need to prove you meant to defraud anyone to fine you for it.

What the Risk Alert actually says

A Risk Alert isn't a rule. It carries no force of law and creates no new legal obligation, and the SEC says so explicitly in the document itself. What it does is tell you exactly what its examiners write down when they show up at your firm. Treat it as a preview of the deficiency letter you'll get if you have the same problems.

The alert breaks the findings into three buckets, and if you run an RIA or advise private funds, read all three as a checklist of what not to do. First, cash management. Examiners found advisers sweeping client cash into interest-bearing accounts, some at affiliated banks, without disclosing that the adviser collected revenue from the arrangement. Some disclosures said the adviser "may" receive revenue when it already was receiving it, present tense, ongoing. That's not an oversight the SEC will read charitably. It's a factual misstatement in your Form ADV Part 2A brochure, the client-facing disclosure document every registered adviser must deliver.

Second, revenue tied to product selection. Examiners flagged advisers who put clients into higher-cost mutual fund share classes that paid the adviser or an affiliated broker-dealer a 12b-1 fee (a fund fee, capped at 1% of assets annually, that finances marketing and can be split with anyone who sells the fund) when a cheaper share class of the identical fund was sitting right there, available, and revenue-neutral for the adviser. The alert also called out undisclosed benefits tied to custodial credits, margin loan markups, and transaction fees, all of which put money in the adviser's pocket while the client's Form ADV brochure said nothing about it. A client alert from Morrison Foerster flags that this cash-sweep and share-class language echoes the SEC's fiscal year 2026 examination priorities almost word for word, which tells you the agency isn't improvising. It's executing a plan it published in advance.

Third, fee billing mechanics that don't match the client agreement: prorating fees when the agreement doesn't call for it, charging asset-based fees on assets the contract explicitly excludes, failing to apply reduced rates for cash or fixed-income holdings, billing inactive accounts, and not refunding prepaid fees when a client terminates. None of this requires fraud. It requires a compliance program nobody has stress-tested against the firm's actual billing software in a while.

The enforcement record backing up the warning

The Foundations case, filed the day before the Risk Alert, is the clearest illustration of what happens when these gaps go unaddressed for years. According to the SEC's administrative order (Investment Advisers Act Release No. 6970), Foundations and Rice failed to disclose three separate conflicts to roughly 25,000 advisory clients over a six-year stretch from 2019 through 2025. Rice personally paid $100,000 through a wholly owned entity for a 4.99% profit interest in a sub-adviser that fed model portfolios to Foundations' clients. By the end of 2020, 66% of Foundations' client assets sat in that sub-adviser's ETFs. Rice didn't disclose the arrangement until a Form ADV update in March 2021, five months after signing it, and collected $434,162 in profit-share payments before terminating the deal in 2023.

Separately, Foundations signed an expense-sharing agreement with another fund manager that made Foundations financially liable for shortfalls if four of its own ETFs didn't attract enough assets to cover costs, which gave the firm a direct incentive to steer clients into those products. During the same period, Foundations' ADV brochure stated flatly that the firm had "no material financial interest in any securities being recommended." The SEC called that false. On top of both conflicts, Rice personally traded the affiliated ETF on 87 separate days without pre-clearing a single transaction, even as Foundations' clients came to hold roughly 80% of the ETF's entire outstanding float. InvestmentNews reported that the settlement cost Foundations $1.2 million in civil penalties plus disgorgement, and cost Rice personally $434,162 in disgorgement plus a $354,675 penalty. Total damage: about $2.1 million. Neither party admitted wrongdoing, because under the settlement they didn't have to.

The Adit Ventures case, filed August 10, 2026, moves the same theme into the private fund space that matters most to this readership. The SEC's complaint alleges that Adit Ventures Management, its CEO Eric Munson, and three affiliated general partner entities defrauded investors in funds built to hold pre-IPO shares of companies including SpaceX and Klarna. From April 2019 through December 2024, the SEC alleges the defendants bought pre-IPO shares themselves and then had the funds buy those same shares at a markup, without disclosing the true cost or obtaining investor consent for what securities law calls a principal transaction: the adviser trading with its own client fund rather than a third party. The complaint also alleges Adit charged millions in undisclosed "acquisition fees," took undisclosed loans from the funds on favorable terms, and pledged fund assets as collateral for a $10 million line of credit used partly to cover the defendants' own obligations. The SEC also alleges Adit never registered as an investment adviser, a separate violation on top of the fraud claims.

Who this hits and how

If you're a registered investment adviser managing retail or high-net-worth client accounts, the Risk Alert is your immediate to-do list. Pull your Form ADV Part 2A, Items 10 and 12 specifically, and cross-check every disclosed and undisclosed revenue stream against what your custodian, clearing firm, and any affiliated broker-dealer actually pay you. If your brochure says you "may" receive revenue from a cash sweep program and you've been receiving it for the past three quarters, fix the language before an examiner flags it for you.

If you're a general partner running a private fund under a Reg D exemption, whether SEC-registered or filing as an exempt reporting adviser (ERA, a private fund adviser below the $150 million AUM threshold that files a Form ADV but skips full registration), the Adit case is your warning. Every principal transaction, meaning any time you or an affiliate sell an asset to your own fund, needs documented investor consent and full disclosure of the actual acquisition cost, not the marked-up price you're charging the fund. Every fee not spelled out in your fund's limited partnership agreement or private placement memorandum is a fee the SEC will treat as undisclosed compensation if it ever asks. If you're borrowing against fund assets, that arrangement needs authorization from your governing documents and disclosure to your LPs before you do it, not after.

If you're an emerging manager raising your first or second fund, don't assume the SEC's scrutiny is reserved for firms with $10 billion in assets like Foundations. The Wisdom Capital Management enforcement matter, which produced a $1.15 million default judgment in August 2026, involved a small purported ERA that claimed venture-capital-fund status and $10 million in assets under management on its Form ADV. A JD Supra analysis of the case details how the SEC found those filings entirely unverifiable: the listed Wall Street office had no record of the firm, a listed phone number rang to a Texas area code, and no other adviser or SEC database corroborated the claimed funds. The case is a reminder that the ERA exemption, letting private fund advisers with under $150 million in U.S. assets skip full registration, doesn't exempt you from having your Form ADV representations checked. The SEC's Section 204(a) examination authority reaches ERA books and records regardless of registration status.

Retail and accredited investors should take away a narrower but equally important point: your adviser's Form ADV brochure is not a formality you skim once at onboarding. It's the primary document disclosing how your adviser gets paid beyond the fee you write a check for, and SEC examiners are telling you, through this Risk Alert, that a meaningful share of advisers get it wrong. Ask your adviser directly whether they, or any affiliate, receive revenue from your cash balances, your fund selections, or your custodian relationship. A vague answer is the same vagueness the SEC just spent a Risk Alert describing.

Where firms get this wrong, in my experience

I've sat on the fund side of enough capital raises to know exactly how these disclosure gaps happen, and it's rarely malice. It's staleness. A firm drafts its ADV brochure and PPM conflicts section once, gets it reviewed by outside counsel, and never revisits it as the business adds a sub-advisory relationship, launches an affiliated fund, or signs a new custodial revenue-sharing deal. Three years later the disclosure describes a business that no longer exists, and nobody in compliance owns reconciling the document against the current org chart.

The second failure mode, the one Foundations illustrates best, is treating disclosure as a compliance department problem rather than a decision-maker problem. Rice sat on the investment committee that kept directing client money into the sub-adviser he personally profited from. The CIO who held undisclosed outside roles also sat on that committee. When the people deciding where client money goes are the same people benefiting from where it goes, no compliance manual fixes that on its own. You need a structural firewall: the person with the conflict recuses from the vote, documented in the minutes.

The third failure, specific to GPs raising capital right now, is assuming that because a fee or arrangement is "market standard" in venture or private equity, it doesn't need explicit disclosure. Acquisition fees on secondary or pre-IPO share purchases are common in the space Adit operated in. The fraud wasn't charging a fee. It was charging an undisclosed fee while misrepresenting the underlying acquisition cost to investors who had no way to check the number independently. If your LPs can't independently verify a cost you're representing to them, that's precisely the information asymmetry the SEC's antifraud provisions under the Securities Act, the Exchange Act, and the Investment Advisers Act exist to police.

What to do before your next exam or your next capital call

Run this against your firm this month, not next quarter.

• Pull every custodial, clearing, and cash-sweep agreement your firm or an affiliate has signed and confirm your Form ADV Part 2A, Items 10 and 12, discloses the actual revenue received, in present tense, not hedged as a possibility.
• Audit every mutual fund or money market share class your clients hold against the lowest-cost share class available for the same fund. Document why you selected the class you did if it isn't the cheapest.
• Cross-check every fee actually billed in the last four quarters against what your advisory agreements and PPMs authorize. Flag and refund any fee charged on excluded assets, inactive accounts, or terminated relationships.
• List every principal transaction your fund has executed in the last three years, meaning every purchase or sale between the fund and you, an affiliate, or another fund you manage, and confirm each one has documented, contemporaneous LP consent.
• Require any committee member, investment or otherwise, with a financial interest in a recommended product or sub-adviser to recuse from the vote, and put that recusal in the written minutes.
• If you're an ERA, confirm every fact in your Form ADV, office address, AUM, listed funds, personnel, can be independently verified by a third party today, not just at the time you filed it.

None of this is complicated work. It's tedious, unglamorous document reconciliation, and that's exactly why it gets skipped until an examiner or a plaintiff's attorney does it for you. The Risk Alert and the Foundations settlement landed one day apart for a reason: the SEC wants firms to check their own books before its staff does it during an exam. The Adit Ventures complaint two months later is the version of this story where nobody checked anything until federal prosecutors did.

Author Disclosure: Jeff Barnes, MBA has no personal position in any company, fund, or platform named in this article. Angel Investors Network has no current commercial relationship with any party mentioned. AIN provides marketing and education services, not investment advice. Past performance does not guarantee future results. All investments involve risk, including loss of principal.