Advisory Firm Discipline Highlights Need for Custody and Trade Execution in Customer's Best Interest

The dually registered broker-dealer and investment adviser, Folger, Nolan, Fleming, Douglas Capital Management, Inc., recently ran afoul of SEC requirements, including those for custody and trade execution.

Advisers must beware that the SEC will discipline firms, such as Folger, Nolan, which have "failed to adequately explain the full range of factors that should be considered by a client in selecting a broker that would enable clients to make an informed selection, including the possibility of placing trades through a lower cost discount brokerage firm."

Additionally, Folger, Nolan "did not conduct a systematic review of execution quality for its clients" And the firm "did not offer non-referred advisory clients a 'house account' commission rate on trades placed through its broker-dealer, which was significantly less than the full service commission rate typically charged to customers of its broker-dealer and which was comparable to the published rates of a major discount broker."

For these and other rule violations, the advisory firm was censured, and ordered to pay disgorgement in the amount of almost $245,000, plus a civil money penalty of $100,000.

Source: SEC Order