Ethical and Professional Standards

Hi Guys,

I am reading my own notes that I took directly from answers. and now I am confused:

  1. Evaluation of broker’s ability to provide best execution also needs to include the obligation to generate a specific amount of brokerage.
  2. Although an agreement to generate a specific amount of brokerage is not required to be evaluated in the context of best execution, it is an agreement that should be documented and maintained.​

I found these two statments contradicting to each other.

So does evaluation of best execution require or NOT require generating a specific amount of brokerage?

Please help, thanks

Where did you read this? Sincerely I don’t remember this from the questions.

What I see is that some portfolio managers increase innecessarily the amount traded in a fund in order to achieve a minimum brokerage amount. For example, if you are a fixed rent portfolio manager and replicate an index, it is unfair to clients that their funds were traded actively like they were stocks, so it is better that “best execution” also considers a suitable amount of brokerage, however, this is not always true because some portofolio managers can increase the brokerage amount and receive great research info in exchange that obviously benefit clients. This compensates the higher money paid in transaction costs.