Compliance
An examiner asks how you reviewed execution quality last year. You either produce the record or you explain why there isn't one.
Best execution is not a duty to get the best price on every trade. It is a duty to seek the most favorable terms reasonably available under the circumstances, and — this is the part firms miss — to review periodically whether you are in fact doing so.
It is a process obligation with an evidence requirement. Which means a firm can obtain excellent execution and still fail, if it cannot show that it looked.
Trades are placed through the custodian, so execution quality is assumed to be the custodian's problem. It is not. The obligation sits with the advisor regardless of who routes the order.
Someone looks at fills occasionally and is satisfied. Nothing is written down. A year later there is no way to demonstrate the review happened, which for evidentiary purposes is close to it not having happened.
Commission is easy to compare and rarely the largest cost. Spread, market impact and timing usually matter more, and none of them appear on a statement. A firm that compares commissions and concludes it is getting good execution has measured the cheapest thing to measure.
| Element | What it should show |
|---|---|
| A measurable benchmark | Fills compared against the best available market price at the time of execution, not against commission schedules. |
| Coverage | All trades, not a sample chosen after the fact. |
| Periodicity | A review that happens on a schedule and is recorded whether or not it found anything. |
| Independence | Data from the custodian or an independent analysis provider carries more weight than a self-report. |
| A conclusion | Someone looked, decided, and signed. A dataset without a conclusion is not a review. |
Execution quality is usually expressed as the share of trades filled at or better than the best available market price, and providers quote it constantly. It is close to useless as a comparison.
A figure means nothing without three things attached: who measured it, across what population, and over what period. Self-measured statistics are the norm in this category, and a provider grading its own homework will always pass. Ask any provider quoting a number for all three, and treat reluctance as the answer.
But the deeper problem with the number is that it answers a question nobody is being examined on. No regulator examines you on the fill rate alone. They ask whether you had a process, applied it, reviewed it periodically, and can produce the evidence.
The obligation does not disappear when you outsource trading, and any provider suggesting otherwise is describing something you should not buy. What changes is who does the work of discharging it.
Every order we place is measured for execution quality by an independent transaction-cost analysis provider — not by us. The review happens on a schedule whether or not anyone remembers to ask for it, and the record exists before an examiner does.
That is the honest version of what an operating partner takes off your desk here. Not a better percentage. The expertise to run the process, the technology to measure it, and the evidence when somebody asks.
This is entirely doable in house, and plenty of firms do it well. What it requires is a written execution policy, a periodic review against something other than commission, a record of that review, and a named person who owns it. If those four exist, the size of your firm is irrelevant.
If they do not exist, the exposure is not that your execution is poor — it probably is not. It is that you have no way to demonstrate otherwise.
Questions this did not answer? Ask them directly — that is what the twenty minutes is for.
Schedule a call to see for yourself