- Described common best execution findings, cited in deficiency letters sent to IAs.
- Advisers Act has established a federal fiduciary standard for investment advisers.
- To seek to obtain best execution of client trades based on facts and circumstances.
- When directing brokerage, consider full range, quality of broker-dealer’s services
value of research, execution ability, commission, financial terms, responsiveness.
Soft Dollar Arrangements
- Value impacted by IA receipt of brokerage and research services, adviser may pay
more than lowest commission rate in soft dollar deal, without breaching fiduciary.
- As per SEA Section 28(e), include more detailed disclosure on such arrangements.
Compliance Review Issues
- IA could not demonstrate their periodic or systematic evaluation of best execution performance evaluation of brokers, no paperwork to demonstrate that it happened.
- Or no consideration of all material factors, nor evaluate qualitative factors for BDs.
- Did not considering quality and cost of services available from other broker-dealers.
- Not disclosing soft dollar terms fully and fairly on Form ADV, how clients bear cost.
- Nor general disclosures, of how type of client accounts may trade same securities
after another client accounts, and potential impact of practice on execution prices.
Policies and Procedures
- Inadequate compliance policies and procedures, internal control, failure to monitor.
- Some did not follow own policy and procedure on best execution, reviews, allocate.