SEC Busts Two Buysides for Best Execution Violations

The Securities and Exchange Commission sanctioned two investment advisory firms for failing to seek best execution on client trades placed with their in-house brokerage divisions.

The regulator found that New York-based A.R. Schmeidler & Co.–which is dually registered as an investment adviser and a broker-dealer–failed to reevaluate whether it was providing best execution for its advisory clients when it negotiated more favorable terms with its clearing firm. That led to Schmeidler keeping a greater share of the commissions it received from clients. 

Schmeidler agreed to pay more than $1 million to settle the charges.

In a separate investigation, the SEC found that Gregory W. Goelzer and his Indianapolis-based dually registered firm Goelzer Investment Management (GIM) made misrepresentations in its Form ADV about the process of selecting itself as broker for advisory clients.  The firm failed to seek best execution for its clients by neglecting to conduct the comparative analysis of brokerage options described in its Form ADV, and recommended itself as broker for its advisory clients without evaluating other introducing-broker options as the firm represented it would.

Goelzer and GIM agreed to pay nearly $500,000 to settle the charges.

“These cases send a clear message to dually registered investment advisers and broker-dealers about our expectations in connection with their best execution analysis,” said Andrew Ceresney, Co-Director of the SEC’s Division of Enforcement.

“Investment advisers must carefully analyze whether their clients are obtaining the most beneficial terms reasonably available for their orders, particularly if those orders are executed through affiliated broker-dealers.  We will hold accountable those advisers who fail to do so.”

Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, added, “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.”