RIA Failed Best Execution when Trading through Affiliated BD
A registered investment adviser and its principal agreed to pay nearly $500,000 in disgorgement and penalties for charging clients higher commission rates through an affiliated broker-dealer. The SEC charges that the respondents misled advisory clients by claiming that they received a discount when trading through the affiliated BD. The SEC asserts that the advisory clients paid higher rates than the BD charged the RIA, with the difference going to the RIA and its principal, a registered representative of the BD firm. Although the firm disclosed the potential conflict of interest in its Form ADV, it did not disclose this compensation arrangement. The SEC also asserts that the firm did not conduct the best execution review described in its Form ADV.