- September 20, 2018
- Posted by: giawatkins
- Category: Compliance
In July, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) released a Risk Alert that identified common deficiencies they found in examinations of Best Execution obligations across 1,500 investment advisers. We encourage our clients to read it in full, including the Enforcement Actions referenced, as OCIE continues to focus on this area in their exams.
Here is our summary of the OCIE Alert:
In August, the SEC continued its pursuit of enforcement actions against wrap fee Investment Adviser sponsors, for failure to meeting best execution due to weakness in oversight of sub-adviser trading away practices. Refer to www.sec.gov/litigation/admin/2018/ia-4984.pdf
The industry’s landscape of Best Execution obligations – which can include trading away by wrap manager sub-advisers – varies greatly. Each RIA’s business model, order routing and execution, and clearing firm represent significant variables that must be considered and addressed in order to develop appropriate Best Execution policies, procedures and practices
Our key takeaways from the Risk Alert and Enforcement Action are:
Remember the Basics – Advisers are absolutely expected to have policies, procedures and practices that align with their business model. For many, these are straight-forward, but a few key areas bear mentioning:
- Ensure that your policy outlines who is responsible, what they are expected to review, and how frequently they conduct the review. Most importantly, document the work.
- Remember to consider, review and disclose to your clients if needed, the following:
- Soft Dollar Arrangements
- Payment for Order Flow
- Trading Away Disclosures and Oversight
- Periodic Review of other available execution venues
Overall, OCIE examiners continue to take their observations of Best Execution best practices from large broker/dealers and RIAs, and then apply them across the spectrum of all firms, with little regard to size and infrastructure. Many of these best practices are quite detailed, so we encourage our clients to review their practices.
As always, the CFI team is prepared to assist firms with those reviews. We have several experts with deep and broad experience in crafting and maintaining these programs at large broker/dealers and RIAs, which provides us with first-hand insight into the best practices that the SEC expects in this area.