Practice question, Fees and economic conflicts
List every source of revenue or benefit you or your professionals receive beyond the stated advisory fee, show where each is disclosed, and demonstrate how fees are calculated and tested against the client agreements.
Taft practice question: not an official regulator question. SEC Division of Examinations, United States (federal). For SEC-registered investment advisers. Evidence category: Client agreements and disclosures.
Not legal advice. A practice prompt for rehearsing how your team explains its controls and evidence. No scoring, no model answer, no implication that a regulator will ask these words.
Authored by Taft. Last checked 2026-11-09. All questions.
Why it is relevant
A 2026 staff risk alert says the Division prioritizes review of economic incentives to recommend products, services or account types, and that staff evaluate whether advisers accurately calculate and charge fees and expenses in accordance with client disclosures. The 2027 priorities name fee rebates, fee and expense calculations and cash management among the areas reviewed.
Sources: [1] Section I, Introduction, [2] Section I.A, Fiduciary Standards of Conduct
Evidence to locate
Suggested, not mandatory. A regulator's actual request list governs.
Follow-up prompts
How are cash sweep or cash management arrangements disclosed, and who benefits from them?
Applicability
- Applies to
- Advisers registered or required to be registered with the SEC.
- Does not apply to
- Not stated.
Cite
Cite the official source first. Then: Taft Compliance Group, Exam-prep toolkit (draft), question q-economic-conflicts-fees, https://taftcompliance.com/resources/exam-prep-toolkit/questions/q-economic-conflicts-fees, last checked 2026-11-09.
Sources
U.S. Securities and Exchange Commission, Division of Examinations, Risk Alert: Examinations Observations of Investment Adviser Obligations Related to Economic Conflicts of Interest (staff statement). regulator guidance. Section I, Introduction, pages 1 to 2.
https://www.sec.gov/files/observations-ia-obligations-related-economic-conflicts-interest-060926.pdf
Checked 2026-11-09; published 2026-06-09.
Supporting passage
During examinations of SEC-registered investment advisers ("advisers"), the Division prioritizes the review of economic incentives that advisers and their financial professionals may have to recommend certain products, services, or account types to their clients (e.g., the source and structure of compensation, revenue, or other economic benefits). In addition, the staff evaluates whether advisers are accurately calculating and charging clients advisory fees and expenses in accordance with client disclosures.
U.S. Securities and Exchange Commission, Division of Examinations, Fiscal Year 2027 Examination Priorities (staff statement). regulator guidance. Section I.A, Fiduciary Standards of Conduct, page 5.
https://www.sec.gov/files/2027-exam-priorities.pdf
Checked 2026-11-09.
Supporting passage
The Division will prioritize reviewing advisers' fiduciary obligations relating to economic conflicts of interest. These reviews will assess whether advisers' financial conflicts may affect the impartiality of their advice in certain areas, such as fee rebates, fee and expense calculations, cash management, quid pro quo arrangements, deposits, and withdrawals.
U.S. Securities and Exchange Commission, Division of Examinations, Risk Alert: Investment Advisers: Assessing Risks, Scoping Examinations, and Requesting Documents (staff statement). regulator guidance. Attachment, Typical Initial Information Examiners Request of Investment Advisers: Compliance Program and Oversight Process; Valuation; Information Processing, Reporting, and Protection.
https://www.sec.gov/files/risk-alert-ia-risk-and-requesting-documents-090623.pdf
Checked 2026-11-09; published 2023-09-06.
Supporting passage
Compliance policies and procedures in effect during the examination period. Tests performed (i.e., compliance reviews, quality control analyses, surveillance, and/or forensic or transactional tests performed by the firm). Annual and/or interim reviews of policies and procedures, including any reports prepared. Record of compliance exceptions. Inventory of compliance risks and conflicts of interest that forms the basis for policies and procedures and notations regarding changes made to the inventory. Valuation process. Fair-valued and illiquid securities held by clients. Advisory fee calculations. Pricing overrides. Safeguards for the protection of customer records and information. Business continuity plan. Cybersecurity incidents or breaches (e.g., incident description, impact, and remediation).
U.S. Securities and Exchange Commission, Division of Examinations, Risk Alert: Investment Advisers: Assessing Risks, Scoping Examinations, and Requesting Documents (staff statement). regulator guidance. Attachment, Typical Initial Information Examiners Request of Investment Advisers: Conflicts of Interest and Insider Trading; Marketing and Advertising; Custody.
https://www.sec.gov/files/risk-alert-ia-risk-and-requesting-documents-090623.pdf
Checked 2026-11-09; published 2023-09-06.
Supporting passage
Code of Ethics attestations. Exemptions from Code of Ethics for supervised persons. Reports of securities transactions reported by access persons. Fee splitting or revenue sharing arrangements. Testimonials and endorsements, including payments made and compensation received. Third-party ratings and rankings. Custodian identification and contact information for entities that maintain custody of client assets. Surprise examination documentation, such as engagement letters, client account lists, and reports, results, and recommendations. Auditor engagement letters, opinions, and findings. Custodial confirmation of positions for specific clients.
Changes to this question
No released changes.