As an investment advisor, your firm has a fiduciary duty to attempt to achieve best execution for your clients. This means an advisor firm must execute transactions for clients in a manner that the clients’ total costs or proceeds in each transaction are most favorable under the circumstances. This obligation is something that should be made part of your firm’s annual assessment of its policies and procedures. While RIA Compliance Consultations recommend on-going reviews of broker-dealers used, it is important to conduct at least an annual best execution and due diligence review of all broker-dealers that the advisor directs client trades. This is true for those advisor firms that use only one or two recommended broker-dealers. It is also true even when using a large, reputable broker-dealer such as Fidelity, Fiserve, Pershing, Schwab, or TD Ameritrade.
In selecting a broker-dealer to execute client securities transactions, RIA Compliance Consultants believe it is important to consider the full range of service offered by determining, at a minimum, the following:
– Execution capabilities including the ability to handle trades and answer
calls in a volatile market
– Commission rates
– Financial responsibility
– Value of research or brokerage provided
– Technology provided
– Willingness, ability, facilities and infrastructure to work with investment
advisor firms
– Administrative resources
– Responsiveness
– Pricing for services provided
It is also important to note that regulators have indicated that best execution is not determined by just the lowest possible commission costs but by the best qualitative execution. Therefore, it is not only okay, but necessary to conduct a quantitative and qualitative review of broker-dealers used. Firm should systematically and periodically evaluate broker-dealers used along with other broker/dealers to ensure that the firm’s recommended broker-dealers’ best execution services are optimal.
Posted by Bryan Hill
Labels: Best Execution, Compliance Program
