The Securities and Exchange Commission is likely to revise best execution requirements for registered investment advisors. That’s the prediction of the Healthy Markets Association, an investor advocacy group that focuses on the structure of the financial markets.
“Best execution” means financial firms have an obligation to seek the most advantageous trading costs for clients, and it is part of their fiduciary obligation.
Given the advances in modern trading technology, the SEC, global regulators and market participants see best execution requirements as ripe for modernization. In a report to its members, the Healthy Markets Association predicted Thursday that revisions to RIAs’ practices are likely to occur in a combination of rule-making, guidance and enforcement actions.
However, the group said it does not expect regulators to foist broker-like best execution obligations on advisors.
While the SEC has long said advisors have “best execution” responsibilities, what those are have been unclear, said the report.
The result is that advisors have developed a wide range of strategies for asset classes and funds that have varied widely over time, across firms and even within firms.
Ultimately, the Healthy Markets Association said it expects investment advisors and those acting on their behalf to insist brokers, alternative trading systems and other market venues provide enhanced disclosures and advanced statistics so the advisors can better measure execution quality and conflicts of interest.
The SEC is likely to help by expanding the availability of the data, the Healthy Markets Association predicted.
The group said the U.S. is behind Europe in formulating improvements in best execution requirements.
It noted that in 2014, the European Union enacted revisions to its Markets in Financial Instruments Directive.