By Steve Hughes J.D.; Senior Manager, U.S.
Fiduciary duty is supposed to be the unbreakable promise: to put clients first, always. But dig into private funds and alternative investments, and you’ll find a myriad of hidden conflicts and fee grabs that potentially violate that duty.
Fiduciary duty stands as the core commitment for registered investment advisors (RIAs) to always prioritize client interests. While the vast majority of RIAs uphold this standard with integrity and compliance, a small subset of bad actors can introduce misalignments that can erode this duty.
Recent Securities and Exchange Commission (SEC) enforcement actions reveal where registered investment advisors (RIAs) continue to fall short in managing conflicts, disclosing fees and maintaining oversight in private fund structures.
Fee structures and disclosure gaps
RIAs often present private funds as attractive, sophisticated options for clients. However, fee arrangements in these vehicles can create significant conflicts. Advisors may receive additional compensation through transaction-based fees or other incentives that are not always fully disclosed, which can stain the duty of loyalty.
In one 2025 SEC case, an advisor was charged for failing to disclose conflicts in retirement rollovers where the firm’s interest appeared to come before the clients’. Another private find manager faced enforcement for layered fees that were not properly offset for investors.
Strong, transparent audit processes can help RIAs identify and address these issues more effectively.
Private funds: lockups, liquidity and oversight risks
Private funds typically offer access to illiquid assets with extended lock-up periods, promising exclusive opportunities. At the same time, these structures can make it harder for clients and regulators to detect problems quickly.
SEC actions in 2025 highlighted cases where advisors directed client capital into investments that carried undisclosed risks or provided personal benefits to the advisor. Common concerns also include side letters that give preferential treatment to certain clients and unclear allocation of expenses.
Requiring independent valuation and rigorous due diligence can significantly strengthen oversight.
Post-merger challenges
With RIA consolidations exploding, fiduciary duties may get overlooked in a rush. Acquirers inherit conflicts like mismatched fee models, legacy compliance gaps, or undisclosed incentives post-merger.
The SEC’s 2026 priority list flag this, but 2025 actions already exposed firms ignoring best execution in private fund trades after deals. One RIA faced $150,000 in fines for repeated compliance failures, even after prior warnings. Tactically, pre-merger conflict inventories are essential yet overlooked.
Key takeaways
- Conflicts can undermine trust: Undisclosed fees in private funds are more than an oversight; they can harm clients and result in substantial penalties for firms
- Private funds carry heightened risks: Lockups can hide problems; RIAs must conduct rigorous vetting to avoid major enforcement actions
- Mergers can amplify challenges: Post-deal duty fiduciary lapses often turn growth opportunities into compliance headaches; proactive audits are key to avoiding them
How we can help
Our experienced U.S. regulatory and compliance team is here to help you navigate potential issues that the SEC is focused on in 2026. We can help prepare you for examination, review these areas during your annual review or support you in conducting a comprehensive compliance review of your conflict and expense policies and procedures. Get in touch with our team today.
