2011 CFAI Mock AM Q6

Hi in Q6 they ask about the “Partners claims for compliance” I put B, because of the definition of research. My understanding is that all research, proprietary and third party, counts as research. They distinguish between them. The answer is C, because of the definition of soft-dollar arrangements. As far as I can tell, they are saying that soft dollars come from agency and principal trades, which is fine. Did this mess anyone else up?

WHy the answer is C?

I put B also with the same logic you used

I got it correctly as C

My rationale is, when he said " we believe we exceed industry standard so we can claim complicance with the provision" -> that is nonsense because you cannot claim you comply just because you exceed industry standard.

but the c is referring to definition of softdollar arrangement. Basically something is wrong with the “process” of softdollar.

The only thing looks suspecious to me is that the company average out the brokerage commission acrosss all client accounts to get volumn discount. It may not be fair for all clients.


I initially thought so as well. But think of it this way, could a single low volume transaction for a client account be able to get more competitive rates compared to if you merge your transactions before sending out to your broker. Likely, high volume trades will be able to help reduce commission costs in the long run when averaged out. This brings savings of transaction costs to clients account.

I got this correct. The brochure says soft dollar brokerage is: "soft dollar brokerage refers to transactions conducted on an agency basis and includes trades conducted on a principal basis "

That is not the definition of soft dollar brokerage. Hence C.

It is paying for those types of transactions with client brokerage assets.