Carter works for Invest Today, a local asset management firm. A broker that provides Carter with proprietary research through client brokerage arrangements is offering a new trading service. The broker is offering low- fee, execution-only trades to complement its traditional full-service, execution-and-research trades. To entice Carter and other asset managers to send additional business its way, the broker will apply the commissions paid on the new service toward stratifying the brokerage commitment of the prior full-service arrangements. Carter has always been satisfied with the execution provided on the full-service trades, and the new low-fee trades are comparable to the fees of other brokers currently used for the accounts that prohibit soft dollar arrangements. A. Carter can trade for his accounts that prohibit soft dollar arrangements under the new low-fee trading scheme. B. Carter cannot use the new trading scheme because the commissions are prohibited by the soft dollar restrictions of the accounts. C. Carter should trade only through the new low-fee scheme and should increase his trading volume to meet his required commission commitment.
a
B
B
B u would be subsidising the research cost with the low cost execution only soft dollars
B
A
B
A, seems fine to me
I’m thinking B. If a client says no soft dollar arrangements, you have to accept it. In the real world, I’d assume you would talk to the client. But with the info here, no means no.
B
A
A. If the broker provides best execution sans research and includes research as well that is still a broker that can be used. If the best execution was inclusive of the soft-dollar research this broker would be off the list.
A is correct. The question relates to Standard III(A)—Loyalty, Prudence, and Care. Carter believes the broker offers effective execution at a fee that is comparable with those of other brokers, so he is free to use the broker for all accounts. Answer B is incorrect because the accounts that prohibit soft dollar arrangements do not want to fund the purchase of research by Carter. The new trading scheme does not incur additional commissions from clients, so it would not go against the prohibitions. Answer C is incorrect because Carter should not incur unnecessary or excessive “churning” of the portfolios (excessive trading) for the purpose of meeting the brokerage commitments of soft dollar arrangements.