CFA Mock 2014: Soft-dollar

What is wrong with below statement?

“Trendwise must seek to obtain best execution, minimize transaction costs, and client brokerage should be used solely for research.”

Is it because client brokerage usage is not limited to research that makes this statement false? If yes… what else can it be used on?


It is the clients property so it has to benefit the client overall I believe. Only research probably becomes too specific.

I am also a bit perplexed on this topic.

Obviously, brokerage has to benefit the client and that benefit comes in the form of esearch. But it seems like Principle 2 above was not correct because it only specified research. Not sure what other benefits the client could receive as it relates to soft dollars?

Any guidance would be much appreciated.

Agreed the answer does appear to be correct in my opinion I think the error however does lie with the ‘only research’ part. The term research was too narrowly described, research in a soft dollar context, expands to services and products that aid the manager in investment making decisions and thus you would expect more than just a simple reaserch report in providing enough ‘information’ to aid decision making.

My understanding is that soft dollars are property of the client/ account beneficiary. I forget what Mock I saw this in, but one of the questions specified that the account beneficiary asked the fund manager to donate the soft dollars allocated to her account to a charity of her choosing. The result of the question was that this was acceptable.

Hope that helps.

Too specific. For example: 1)broker can provide corporate access which assists the investment manager in investment decision-making. 2)Bloomberg, with its specifc focus on real-time market news.

Research as defined in the original posters statement is too narrowly defined. Soft dollars can also be used in the portfolio planning process ie. for modelling software and of course research reports, Whatever it use it has to benefit the client

Soft dollars cannot be used for the operating expenses of the investment management firm