BROWSE BY TOPIC
Stories of Interest
- Sarah ten Siethoff is New Associate Director of SEC Investment Management Rulemaking Office
- Catherine Keating Appointed CEO of BNY Mellon Wealth Management
- Credit Suisse to Pay $47Mn to Resolve DOJ Asia Probe
- SEC Chair Clayton Goes 'Hat in Hand' Before Congress on 2019 Budget Request
- SEC's Opening Remarks to the Elder Justice Coordinating Council
- Massachusetts Jury Convicts CA Attorney of Securities Fraud
- Deutsche Bank Says 3 Senior Investment Bankers to Leave Firm
- World’s Biggest Hedge Fund Reportedly ‘Bearish On Financial Assets’
- SEC Fines Constant Contact, Popular Email Marketer, for Overstating Subscriber Numbers
- SocGen Agrees to Pay $1.3 Billion to End Libya, Libor Probes
- Cryptocurrency Exchange Bitfinex Briefly Halts Trading After Cyber Attack
- SEC Names Valerie Szczepanik Senior Advisor for Digital Assets and Innovation
- SEC Modernizes Delivery of Fund Reports, Seeks Public Feedback on Improving Fund Disclosure
- NYSE Says SEC Plan to Limit Exchange Rebates Would Hurt Investors
- Deutsche Bank faces another challenge with Fed stress test
- Former JPMorgan Broker Files racial discrimination suit against company
- $3.3Mn Winning Bid for Lunch with Warren Buffett
- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.
Stay Informed with the latest fanancialish news.
NEWSLETTERS & ALERTS
OCIE Risk Alert: Best Execution Issues Cited in Adviser Exams
The SEC's Office of Compliance Inspections and Examinations (“OCIE”) published a risk alert to forewarn investment advisers ("RIAs“), investors and other market participants about its concerns with how advisers are fulfilling their compliance with best execution ("Best Ex") obligations under the Investment Advisers Act of 1940.
The Advisers Act establishes a federal fiduciary standard for investment advisers. As a fiduciary, when an adviser has the responsibility to select broker-dealers ("B/Ds") and execute client trades, the adviser has an obligation to seek to obtain “best execution” of client transactions, taking into consideration the circumstances of the particular transaction. An adviser must execute securities transactions for clients in such a manner that the client’s total costs or proceeds in each transaction are the most favorable under the circumstances. Toward that end, advisers should periodically and systematically evaluate the execution quality of broker-dealers executing their clients’ transactions.
COMPLIANCE ISSUES RELATING TO BEST EXECUTION. Below are examples of the most common deficiencies associated with RIAs’ Best Ex obligations, as identified by OCIE staff.
1. Fail to retain evidence of having performed Best Ex reviews – i.e., periodically and systematically when selecting a B/D to execute transactions.
2. Fail to consider materially relevant factors during Best Ex reviews – i.e., the full range and quality of a B/D's services in directing brokerage. For example:
- any qualitative factors including: B/D’s execution capability, financial responsibility, and responsiveness to the adviser.
- input from its traders and portfolio managers.
3. Fail to conduct comparisons with other B/Ds - i.e, seeking out or considering the quality and costs of services available from other B/Ds. For example, advisors utilized a single B/D:
- without seeking comparisons from competing B/Ds initially and/or on an ongoing basis to assess their chosen B/D’s execution performance.
- based solely on cursory reviews of the B/D’s policies and prices.
- based solely on that B/D’s brief summary of its services without seeking comparisons from other B/Ds.
4. Fail to provide full disclosure as to Best Ex practices – For example:
- that certain types of client accounts may trade the same securities after other client accounts, and did not disclose the potential impact of this practice on execution prices.
- they did not review trades to ensure that prices obtained fell within an acceptable range, contrary to statements in their brochures.
5. Fail to disclose soft dollar arrangements – i.e., full and fair disclosure in Form ADV. For example:
- adequate disclosure re: use of soft dollar arrangements.
- that certain clients may bear more of the cost of soft dollar arrangements than other clients.
- adequate or accurate disclosure re: products and services acquired with soft dollars that did not qualify as eligible brokerage and research services under the Section 28(e) safe harbor.
6. Fail to properly administer mixed use allocations - deficiencies related to mixed use allocations. For example, advisers did not or could not:
- make a reasonable allocation of the cost of a mixed use product or service according to its use.
- produce support of the rationale for mixed use allocations.
7. Inadequate policies and procedures relating to Best Ex - inadequate compliance policies and procedures or internal controls re: Best Ex. For example, advisers did not:
- have any policies relating to Best Ex.
- have sufficient internal controls because they failed to monitor B/D execution performance.
- take into account the current business of the adviser, including the type of securities traded by the adviser.
8. Fail to follow Best Execution policies and procedures - For example, advisers did not:
- follow existing policies re: Best Ex review, including seeking comparisons from competing B/Ds to test for pricing and execution.
- allocate soft dollar expenses in accordance with their policies.
- follow existing internal policies re: ongoing monitoring of execution price, research, and responsiveness of their B/Ds.