For the second time in a year, NewEdge Securities, the broker-dealer arm of aggregator NewEdge Capital Group, was penalized by the Financial Industry Regulatory Authority Inc. due to its mishandling of bond trades, and on Friday the firm was penalized more than $1 million for misreporting purchases of new municipal bonds.
Friday’s settlement follows a $144,000 Finra penalty NewEdge Securities agreed to last March, according to the firm’s BrokerCheck profile. That came after Finra alleged that NewEdge charged unfair prices in corporate and municipal bond transactions.
NewEdge Capital Group is a fast growing aggregator of wealth management firms and teams that finished last year with $65 billion in client assets. According to Finra, NewEdge Securities has 322 registered reps, 107 branch offices and is based in Pittsburgh.
The market for municipal bonds is notorious for being opaque and filled with difficult to price securities susceptible to markups from broker-dealers.
Friday’s penalty against NewEdge Securities was in two parts: a fine of $275,000 and disgorgement of $751,000.
According to Finra, from January 2018 to May 2022, NewEdge violated municipal securities industry rules by submitting orders for new issue municipal bonds without disclosing that the bonds were for the firm's dealer account.
NewEdge additionally violated industry rules by failing to report dealer transactions to an industry transaction reporting system.
Retail customers are supposed to be prioritized over broker-dealers when it comes to buying municipal bond offerings, according to Finra.
That failed to happen in this case, with two NewEdge offices essentially jumping ahead in line by not disclosing that the bond purchases were for the broker-dealer’s account and inventory, according to the Finra order.
“You can’t do that if you’re supposed to be operating as a fiduciary,” said one executive at a registered investment advisor. “You have to avoid those conflicts.”
“Municipalities issue bonds to raise funds for public projects and use broker-dealers to underwrite and manage the offerings,” according to the Finra order. “Issuers typically prioritize sales of bonds to retail and institutional customers, who are likely to hold the bonds rather than quickly trade them, over broker-dealers seeking bonds for their own inventories.”
“Broker-dealers generally have the lowest priority in the order sequence, and they can be shut out when demand from retail and institutional customers exceeds available allocations,” according to Finra.
“We are pleased to announce the resolution of this matter,” a spokesperson for NewEdge wrote in an email. “The activity in question - specifically new issue municipal bond trading - was isolated to a single representative’s management of personal assets within a legacy division acquired through previous business transactions.”
In an era of AI euphoria and market FOMO, getting back to basics with fixed income may be the most contrarian and most important move advisors can make.
Voya Financial adds private equity, credit and real estate options to its AMA program, building on support for looser federal investment rules in retirement accounts.
Shannon Reid, president of Osaic and the network’s number two executive, has plenty of challenges, industry executives said.
Auditors flagged the commingling. The COO allegedly knew. Investors kept getting the pitch
The advisors on the move include two brothers leading a family practice in Connecticut, and a husband-and-wife tandem working with business owners in the West Coast.
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.
