FINRA Fines Goldman Sachs-Owned Broker-Dealer $1.3M for Best Execution Failures
The Financial Industry Regulatory Authority has fined Folio Investments Inc., a broker-dealer owned by Goldman Sachs, $1.3 million for failing to meet its best execution obligations.
In a settlement, regulators detailed how the firm prioritized its own lucrative routing arrangements over the best execution quality it owed to its clients for nearly a decade.
Under federal securities laws and FINRA rules, broker-dealers have a “longstanding and fundamental obligation” to obtain the most favorable terms for their customers’ orders. This goes beyond simply executing a trade; it requires firms to use “reasonable diligence” to ensure their clients are not paying more (or receiving less) than necessary under prevailing market conditions.
However, according to the FINRA findings, Folio Investments operated under a model that favored market centers that paid the firm for its order flow. Between 2017 and 2024, Folio generated approximately $4 million in revenue from these “payment for order flow” arrangements.
Regulators alleged that from January 2017 through December 2025, Folio failed to conduct “regular and rigorous” reviews of its execution quality.
For example, the firm only reviewed the execution quality of the venues it was already using, failing to compare those results against competing markets where clients might have received better prices. In late 2022, the firm began routing a substantial portion of its orders to a market maker that was a corporate affiliate, yet it still failed to justify why this was superior to other available options.
When the firm did review performance, FINRA said it focused almost exclusively on a single factor – its own price improvement – while ignoring other metrics like execution speed, client transaction costs, and the likelihood of limit order execution.
Additionally, Folio utilized a unique “windows trading” business model that bundled nearly all customer orders into omnibus trades executed twice daily. While this model can offer cost efficiencies for the firm, FINRA found that Folio’s supervisory system was not reasonably designed to ensure these savings were not coming at the expense of its clients.
Until April 2021, the firm’s written procedures did not even mention the “best execution committee” that was supposed to be overseeing trade quality. Even after adopting a charter for that committee, FINRA said the firm still lacked procedures for evaluating competing markets or determining when it should fire a poor-performing routing venue.
In addition to the $1.3 million fine, Folio Investments was censured and required to have a senior executive certify within 120 days that the firm has implemented a supervisory system capable of meeting its best execution duties.
Folio Investments, which has been a member of FINRA since 1999, was acquired by Goldman Sachs in September 2020 but continues to operate under its own registration. The firm accepted the findings without admitting or denying FINRA’s findings.
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