I’m reading conflicting information regarding soft dollars. In one part of CFAI it says, "… soft dollars must be used only to directly assist in the Manager’s investment decision-making process
In another part it says it must only be used for purchasing research.
Which is it? Using soft dollars to register for CFA would directly assist in the Manager’s investment decision making process, but that is a big no according to CFAI.
Where does it say that they must be used to purchase research?
That’s silly.
I don’t know the daily operative of a fund or a brokerage firm, but the most common soft-dollar commission (softy) is the purchase of research vs the use of brokerage services. The problem of softy is that it is paid out of the investors’ pockets most of the time because brokerage commissions are charged to the clients as transaction costs.
If the fund would be prohibited to use softy, then the fund would have to purchase its own research by using hard-dollar payments (not charged to clients). Clients would still have to pay brokerage commissions, but probably at more efficient prices (that do not include softy).
Reading 2. EOC 30.
Answer C is correct. According to Standard III(A)—Loyalty, Prudence, and Care, the CFA Program would be considered a personal or firm expense and should not be paid for with the fund’s brokerage commissions. Soft dollar accounts should be used only to purchase research services that directly assist the investment manager in the investment decision-making process, not to assist the management of the firm or to further education. Thus, answer A is incorrect. Answer B is incorrect because the reasonableness of how the money is used is not an issue; the issue is that educational expense is not research.
Poor wording on their part. I suspect that they meant that if you use soft dollars to purchase research services, those services have to assist the manager directly in investment decision making, rather than the services providing help for managing the firm or general education.
Sigh.