The Securities and Exchange Commission (SEC) has fined two investment firms with in-house brokerages for failing to meet best execution requirements.
An SEC investigation found New York-based investment advisory firm AR Schmeidler & Co (ARS) and Indianapolis-based Goelzer Investment Management (GIM), did not correctly analyse trades to ensure transactions were executed at the best price possible.
ARS has been fined US$1 million for failing to reevaluate whether it was providing best execution following a negotiation with its clearing firm for better terms. Instead, the firm retained a larger share of the commissions it received from clients, and the SEC said it failed to properly prevent best execution violations.
GIM was found to have made misrepresentations when filing its Form ADV about the process of selecting itself as a broker for clients receiving its investment management services. As it did not conduct a comparative analysis of its clients’ brokerage options it failed to ensure they received the best execution price. It was fined US$500,000.
Marshall Sprung, co-chief of the SEC’s Enforcement Division’s asset management unit, said: “There is a clear conflict of interest when investment advisers execute client trades through their broker-dealer arm. The unit is focused on pursuing dually registered firms that fail to address this conflict through robust disclosure, best execution analysis and compliance procedures.”