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July 12, 2018 at 12:46 PM
The Securities and Exchange Commission released Wednesday its list of the most common infractions when examining advisors’ best execution compliance, with failure to disclose soft dollars making the list.
In its Risk Alert, the agency’s Office of Compliance Inspections and Examinations states that when selecting broker-dealers and executing client trades, advisors must seek to obtain “best execution” of client transactions, considering the circumstances of the particular transaction.
The alert notes the agency’s stance that “the determinative factor [in an advisor’s best execution analysis] is not the lowest possible commission cost but whether the transaction represents the best qualitative execution for the managed account.”
Advisors, the alert advises, should “periodically and systematically evaluate the execution quality of broker-dealers executing their clients’ transactions.”
OCIE found that advisors not only failed to perform best execution reviews but that they also failed to consider “materially relevant factors” during best execution reviews, including not considering the full range and quality of a broker-dealer’s services in directing brokerage.
Advisors also failed to elicit comparisons from other broker-dealers, with OCIE noticing that advisors utilized certain broker-dealers “without seeking out or considering the quality and costs of services available” from other broker-dealers.
