Galvin investigates broker-dealer sales practices in Massachusetts

BOSTON – Massachusetts has launched an investigation into broker-dealer sales practices that could be harmful to customers.

William F. Galvin, secretary of the commonwealth, has instructed his Securities Division to investigate the practice of routing orders to exchanges that offer rebates, and to see whether it’s creating conflict.

“Institutional brokers are responsible for placing millions of dollars of average investors’ life savings in their employers’ pension plans, as well as in mutual funds and variable annuities,” Galvin said in a prepared statement. “If financial rebates or kickbacks create a conflict that results in less than the best deal for the investors, this practice must stop.”

The rebates involved, he said, are paid by exchanges to firms. Galvin noted a recent New York Times op-ed that detailed how brokers are choosing exchanges that pay kickbacks at a price disadvantage to investors.

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“My office is looking into the veracity of those assertions and whether the brokers are meeting their best execution obligation to their customers,” Galvin said.

His office has sent inquiry letters to Charles Schwab & Co. Inc., Scottrade Inc., TD Ameritrade Inc., Fidelity Brokerage Services LLC, E*Trade Securities LLC, Edward D. Jones & Co. L.P. and Morgan Stanley & CO. LLC.

Eli Sherman is a PBN staff writer. Email him at, or follow him on Twitter @Eli_Sherman.