The SEC is ramping up its scrutiny of advisor fees.

The commission has published a risk alert notice detailing the most common compliance mistakes financial advisors make when setting fees and expenses, and outlined scenarios in which advisors have overcharged clients.

The SEC's Office of Compliance Inspections and Examinations uncovered instances of advisors deviating from their own client agreements and the descriptions of their practice provided on part two of their ADV forms.

"It's important to think about the purposes of part two when you're crafting these disclosures. It's designed to include clear and meaningful and current disclosure," Jennifer Porter, branch chief at the Investment Advisor Regulation Office at the SEC's Division of Investment Management, said at a commission-hosted compliance event.

"The requirements are designed to enable investors to better evaluate their advisors and also compare different advisors," Porter said.

Many advisors overcharge clients by using a different method for calculating the value of assets than what they specified in their advisory agreement, according to OCIE's risk alert. In other cases, advisors billed more frequently than they averred in their ADV, such as billing monthly instead of quarterly. Some didn't offer rebates or discounts in the manner they promised, while others simply charged a higher rate than specified in the client agreement.

Many advisors made a disclosure on their ADV form "that was inconsistent with their actual practices," such as fees that exceeded their stated maximum. Some advisors failed to disclose the additional fees charged for certain products on top of their regular advisory fee.

The goal of the risk alert is "to encourage advisors to assess their advisory fee and expense practices and related disclosures to ensure that they are complying with the [Investment] Advisers Act, the relevant rules and their fiduciary duty, and review the adequacy and effectiveness of their compliance programs,” OCIE said

Advisors should view their ADV forms as a living document, subject to periodic reviews, to ensure the disclosures match the firm's actual practices, officials say.

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Advisors should also avoid excessive use of the word "may" in their various disclosures and promotional materials.

Advisors should also avoid excessive use of the word "may" in their various disclosures and promotional materials. Too often, officials find advisors saying that they "may" engage in a certain practice, when that practice is in fact standard operating procedure and there is no "may" about it, according to Adam Aderton, assistant director of the Division of Enforcement's Asset Management Unit.

"When enforcement looks at your disclosures, we're not necessarily looking for the perfect, but if you say you may do something and you are doing it at that time, that is the kind of thing that could rise to an enforcement action," Aderton said.

The SEC's guidance is to remove ambiguity and spell out what the firm does in plain English..

"I think that the most understandable disclosures are where investors don't have to connect the dots. So explaining here's the practice, here's the conflict, here's how it's addressed," Porter said.

Conflicts vary widely within the wealth management industry, and many, even if undisclosed, are not likely to result in an enforcement action taken against a firm.

SEC officials consider issues like the magnitude and duration of undisclosed conflicts, as well as how the disclosure failure occurred in the first place, Aderton explained.

"Is the advisor making a lot of money off of this over a long period time?" he said. "If that's happening, and it's undisclosed, that increases your chances of getting an enforcement investigation and getting a potential enforcement action."

If an undisclosed conflict resulted from an innocent mistake and the firm took swift action to fix the error, SEC officials are more likely to be understanding, Aderton said. Enforcement officials lose their patience when firms fail to address the issues that examiners have flagged in their deficiency letters.

"We want to see that you're continually trying to improve your processes and that you're taking the information that you get from OCIE when they're identifying deficiencies and trying to make your processes better," Aderton said.

The SEC's new risk alert follows a recent initiative launched to stamp out the practice of selling classes of mutual fund shares with high fees when lower-cost shares are available. Through June 12, advisors who report such instances can avoid enforcement penalties, provided they meet certain conditions and refund the fees.

Commission staffers are drafting a set of frequently asked questions to clarify the share-class initiative, which will be released in the next "few days or weeks," Aderton said.

In the meantime, the commission is aggressively looking to root out firms that engage in a practice that officials say is pervasive and robs investors of millions of dollars in excessive fees.

Last week, the SEC announced a $15 million settlement with three advisory firms that steered investors into costly share classes, with more than $12 million going to reimburse clients.

However, the SEC has avoided prescriptive regulations that would set specific rules for advisors' compensation structures.

"We've not said specifically this is the highest fee you can charge, or this type of expense is per se not allowed," Porter said. "But I think the guiding principle always should be that fiduciary duty and putting your client's interest first."