Best Execution: 2025 Standards (SEC Trend)

To meet the best execution: 2025 standards (sec trend) requirement, you must run a documented, periodic best execution program that evaluates total client cost and outcomes, not only execution price, and that specifically addresses conflicts and non-standard fee arrangements highlighted in SEC exam priorities. Your deliverable is defensible documentation that ties routing, share class selection, clearing costs, and disclosures to client benefit.

Key takeaways:

• Best execution is being examined as a holistic “total cost + conflicts” obligation, grounded in fiduciary duty (15 U.S.C. § 80b-6).
• SEC exams are explicitly reviewing conflicts affecting best execution, including non-standard fee arrangements (2025-exam-priorities).
• If you cannot show your work with artifacts (reviews, approvals, exception handling), exams will treat the gap as a program failure (SEC IA Best Execution Risk Alert (2019)).

This requirement page translates a clear SEC trend into an operator-ready standard: your firm’s best execution program has to withstand scrutiny that extends beyond “did we get a good price?” to “did clients receive the best overall outcome, considering costs, conflicts, and the way we structured the relationship?” That trend is consistent with the adviser’s fiduciary duty under the Advisers Act (15 U.S.C. § 80b-6) and is reinforced by the SEC’s best execution risk alert (SEC IA Best Execution Risk Alert (2019)).

For 2024 and 2025, SEC exam priorities signaled sustained attention on advisers’ procedures for acting in clients’ best interests, including best execution, evaluation of costs and risks, and conflict identification and remediation (2024-exam-priorities). The 2025 priorities go further by stating the Division will review the impact of conflicts on impartial advice and best execution, including “consideration given for non-standard fee arrangements” (2025-exam-priorities). That single line changes your operating standard: you need a repeatable method to show how your fee structures and related incentives do not degrade execution quality, product selection, or total client cost.

Plain-English interpretation (what the SEC trend requires in practice)

Your obligation is to seek best execution as part of the fiduciary duty of care, and the SEC is treating “best execution” as a broad outcome that includes:

• Total costs to the client, not only execution price (for example: commissions, spreads, markups/markdowns where relevant, clearing and custody-related charges, administrative fees, and product-level expenses).
• Product/share class selection where it changes client cost (for example: selecting a higher-cost share class when a lower-cost class is available for the same exposure).
• Clearing and brokerage arrangements, especially where third-party relationships or revenue sharing create incentives that can conflict with client outcomes.
• Conflicts identification, disclosure, and mitigation, with targeted scrutiny for advisers using non-standard fee arrangements (performance fees, flat fees, tiered or hybrid schedules) (2025-exam-priorities).

This is not a “write a policy and file it” obligation. The exam posture expects you to operate a living program: periodic reviews, exceptions, approvals, and evidence that conflicts were handled in a way consistent with client interests (SEC IA Best Execution Risk Alert (2019)).

Who it applies to (entity and operational context)

Applies to:

• SEC-registered investment advisers (RIAs) executing trades for client accounts or directing brokerage (15 U.S.C. § 80b-6).
• Wrap fee program sponsors and advisers operating programs where trading costs are bundled or appear “included,” because exam teams will still ask how you evaluated execution quality and total client cost (2024-exam-priorities).
• Advisers with affiliated broker-dealers, preferred broker lists, revenue sharing, or any arrangement where the firm (or a third party) benefits economically from a specific routing or clearing outcome (2025-exam-priorities).
• Advisers offering non-standard fee arrangements, because the SEC has flagged these as a conflicts lens during best execution reviews (2025-exam-priorities).

Operational contexts that trigger deeper testing:

• Multiple custodians/brokers with different schedules and rebates.
• Proprietary models or recommended products where expenses differ by share class or platform availability.
• Any “free trading” narrative that obscures spreads, cash sweep economics, or other embedded costs.

Regulatory text

Operator-facing excerpt (trend summary): Investment advisers’ fiduciary duty of care includes seeking best execution, and SEC expectations are broadening to include lowest-cost mutual fund share classes, transparent clearing arrangements, disclosed revenue sharing, and documented periodic reviews, with 2025 exam priorities targeting conflicts from non-standard fee arrangements affecting best execution (15 U.S.C. § 80b-6; 2024-exam-priorities; 2025-exam-priorities; SEC IA Best Execution Risk Alert (2019)).

What that means you must do: build a review and governance cycle that (1) evaluates execution and total cost, (2) tests whether conflicts changed outcomes, and (3) documents decisions, exceptions, and mitigations in a form you can hand to exam staff on request (SEC IA Best Execution Risk Alert (2019)).

What you actually need to do (step-by-step)

1) Set scope and ownership (make it examinable)

• Assign a Best Execution Owner (often trading, operations, or compliance) and a review forum (committee or standing monthly/quarterly meeting).
• Define the universe: accounts, asset classes, venues/brokers/custodians, and any third parties involved in routing, clearing, or execution quality reporting.
• Map the conflicts inventory related to trading and costs (affiliations, revenue sharing, rebates, soft dollars if applicable, directed brokerage constraints, platform limitations) (2025-exam-priorities).

Deliverable: best execution charter + RACI + inventory of brokers/custodians/third parties.

2) Define “total cost” for your business model

Build a Total Cost Components Matrix by product type:

• For equities/options: commissions/fees, spreads, price improvement, and any platform charges you pass through or embed.
• For funds: share class expenses, transaction fees, platform availability constraints, and any revenue sharing you receive or your affiliates receive (SEC IA Best Execution Risk Alert (2019)).
• For fixed income: markups/markdowns and liquidity/size constraints (describe what you can measure and what you review qualitatively).

Deliverable: one-page matrix used in reviews; this stops teams from “forgetting” share class or clearing fees when building analyses.

3) Implement periodic best execution reviews with documented methodology

Use a consistent review pack. Even if underlying analytics differ by broker, the review questions should be standard:

• Which brokers/venues were used and why?
• What execution quality evidence did we review (broker reports, OMS data, custodian reporting, third-party TCA where available)?
• What costs were assessed, and what changed since last review?
• Were there exceptions, client restrictions, or directed brokerage, and how were they handled?
• Did any conflict appear to influence broker selection, routing, or product/share class choice (2025-exam-priorities)?

Tie your review frequency to trading volume and complexity. If examiners see irregular reviews with no rationale, they will test more aggressively (SEC IA Best Execution Risk Alert (2019)).

Deliverable: a repeatable best execution review deck with sign-off and action tracking.

4) Add a trend-specific module: non-standard fee arrangements

The 2025 priorities explicitly call this out, so treat it as a required agenda item (2025-exam-priorities). Build an analysis that answers:

• Where could the fee structure create an incentive that competes with best execution (for example: higher turnover benefits the adviser under certain pricing, or certain accounts are subsidized)?
• How do you monitor execution quality and costs for those accounts versus standard-fee accounts?
• What disclosure language explains the conflict clearly, and what mitigation reduces the risk in practice (supervision, limits, review triggers)?

Deliverable: “Non-Standard Fee Best Execution Memo” with controls, monitoring, and disclosures cross-referenced.

5) Operationalize share class and platform economics controls

Because the SEC trend includes lowest-cost share classes and total cost, build controls that catch cost regressions:

• Maintain a share class decision record for each fund held in managed programs, including eligibility constraints and cost rationale (SEC IA Best Execution Risk Alert (2019)).
• Implement pre-trade or post-trade exception flags for higher-cost share classes where a lower-cost class may be available on the platform.
• Require documented approval for exceptions, with client-specific rationale.

Deliverable: share class matrix + exception log + approvals.

6) Conflicts: disclose and mitigate, then prove it

Exams are asking how conflicts affect impartial advice and best execution (2025-exam-priorities). Your program needs:

• A conflict register entry for each trading-related incentive.
• Mitigation steps that are operational (for example: broker selection criteria that deprioritize economic benefit to the adviser; committee oversight; periodic testing).
• ADV/disclosure alignment checks so disclosures match actual routing and cost practices (2024-exam-priorities).

Deliverable: conflicts register mapping to mitigations + disclosure crosswalk.

7) Centralize evidence (make production easy)

Most best execution exam pain comes from scattered artifacts. A system like Daydream is useful here because it can map each broker/custodian/third party to the review cadence, store review packets and approvals, and maintain an audit-ready evidence trail without rebuilding the binder every exam cycle.

Deliverable: a single repository with standardized naming, versioning, and retention rules.

Required evidence and artifacts to retain

Use this as your exam-ready checklist:

• Best execution policy and procedures; committee charter; documented methodology (SEC IA Best Execution Risk Alert (2019)).
• Broker/custodian selection criteria; due diligence files; third-party disclosures and fee schedules.
• Periodic review packets (agenda, data reviewed, conclusions, approvals, remediation items).
• Total cost matrix and any TCA/execution quality reporting used.
• Share class matrix, eligibility constraints, and exception approvals (SEC IA Best Execution Risk Alert (2019)).
• Conflicts register specific to trading/clearing/revenue sharing; mitigation testing evidence (2025-exam-priorities).
• Documentation specific to non-standard fee arrangements: rationale, monitoring, and disclosure crosswalk (2025-exam-priorities).
• Training records for trading/ops/advisory staff on best execution obligations and escalation paths.

Common exam/audit questions and hangups

Expect variants of:

• “Define best execution for your firm and show where you evaluate costs and conflicts.” (2024-exam-priorities)
• “Show your last review. Who attended? What data did you review? What changed?”
• “How do you evaluate share class selection and eligibility?” (SEC IA Best Execution Risk Alert (2019))
• “Do any third parties pay you or your affiliate in a way that could influence routing or platform selection?” (2025-exam-priorities)
• “Walk us through non-standard fee accounts. How do you show best execution is not degraded?” (2025-exam-priorities)

Hangups that slow exams:

• Reviews exist, but no one can explain the methodology.
• Data is broker-provided without challenge or reconciliation.
• Conflicts are disclosed, but there is no mitigation testing.

Frequent implementation mistakes (and how to avoid them)

1. Treating best execution as a trading-only metric. Fix: make share class and platform cost a required part of the review pack (SEC IA Best Execution Risk Alert (2019)).
2. No linkage between conflicts inventory and best execution reviews. Fix: add a conflicts agenda item and require a written conclusion each cycle (2025-exam-priorities).
3. Non-standard fee arrangements not addressed. Fix: create a separate memo and monitoring triggers specifically for these accounts (2025-exam-priorities).
4. “We review periodically” with no calendar, minutes, or sign-offs. Fix: set a defined cadence, assign ownership, and store approvals (SEC IA Best Execution Risk Alert (2019)).
5. Inconsistent broker selection rationale. Fix: standardize criteria, document exceptions, and tie them to client-specific constraints.

Enforcement context and risk implications (how to frame risk without overclaiming)

The SEC has a long-standing position that best execution is part of the adviser’s fiduciary duty (15 U.S.C. § 80b-6). Recent exam priorities show the Division is actively reviewing procedures, costs, risks, and conflicts, and is explicitly evaluating the impact of conflicts on best execution, including non-standard fee arrangements (2024-exam-priorities; 2025-exam-priorities). Practically, that increases the risk of:

• Deficiency letters for weak documentation or incomplete cost analysis.
• Referrals for misstatements if disclosures do not match actual practices.
• Required remediation and enhanced reporting if the SEC views your program as not reasonably designed (SEC IA Best Execution Risk Alert (2019)).

Practical 30/60/90-day execution plan

First 30 days (stabilize and scope)

• Inventory brokers/custodians/venues and third parties touching execution, clearing, or routing.
• Build your Total Cost Components Matrix by product type.
• Create a conflicts addendum specific to best execution, including non-standard fee arrangements (2025-exam-priorities).
• Stand up a standardized review template and evidence folder structure.

Days 31–60 (run the first defensible cycle)

• Hold your first best execution review using the template; capture minutes and sign-offs.
• Produce a stand-alone memo on non-standard fee arrangements: incentives, monitoring, and disclosures crosswalk (2025-exam-priorities).
• Implement share class exception logging and approvals (SEC IA Best Execution Risk Alert (2019)).
• Update disclosures where a gap is found, and document the change control.

Days 61–90 (tighten controls and testing)

• Add targeted testing: sample trades/accounts to confirm execution quality review matches practice.
• Validate broker reporting inputs (spot checks, reconciliations, challenge process).
• Close review action items; document remediation evidence.
• Move the program into BAU with a calendar, owners, and escalation rules.

Frequently Asked Questions

Does “best execution” mean I must always choose the lowest commission or the best price?

No. The SEC frames best execution within fiduciary duty, and exam priorities emphasize evaluation of costs, risks, and conflicts, which points to a total-outcome approach (15 U.S.C. § 80b-6; 2024-exam-priorities). Your documentation should explain what factors you weighed and why the result served the client.

We have “commission-free” trading. Do we still need best execution reviews?

Yes. The SEC’s trend focuses on total cost and conflicts, not only explicit commissions, so spreads and other embedded costs still matter operationally (2024-exam-priorities; 2025-exam-priorities). Run reviews that address the costs you can measure and the conflicts you can identify.

What changes for firms with performance fees, flat fees, or tiered fees?

The 2025 exam priorities explicitly call out non-standard fee arrangements as a lens for reviewing conflicts and best execution (2025-exam-priorities). Create a dedicated analysis that identifies incentives created by the fee design and documents monitoring and mitigation.

How detailed do our best execution minutes and review packets need to be?

Detailed enough that a third party can understand the methodology, the data reviewed, the decision reached, and the follow-ups, consistent with the SEC’s focus on policies and procedures and periodic reviews (SEC IA Best Execution Risk Alert (2019)). If a conclusion depends on an exception, document who approved it and why.

Do we need third-party TCA to satisfy the SEC trend?

The sources provided emphasize procedures, cost/risk evaluation, and conflicts assessment, but they do not mandate a specific analytic tool (SEC IA Best Execution Risk Alert (2019); 2024-exam-priorities; 2025-exam-priorities). Use TCA where it fits your asset classes and scale; otherwise document the alternative data and qualitative factors you reviewed.

What’s the fastest way to reduce exam friction on this topic?

Centralize artifacts and make reviews repeatable: a fixed template, a calendar, and a repository that ties brokers/custodians/third parties to review outputs and approvals (SEC IA Best Execution Risk Alert (2019)). Tools like Daydream help by keeping the evidence trail organized and current across cycles.