Clarification on Soft Dollars..

It was my understanding that under the Soft Dollar standards, you CAN allocated client brokerage to benefit another client (or other purpose) IF you you get PRIOR consent from the client. The following two questions had seemingly conflicting responses, so I just wanted to make sure I had this policy clear. Liz Davis is a portfolio manager for a firm that claims it is in compliance with CFA Institute Soft Dollar Standards. In purchasing bonds for the account of the pension fund of Richards Company, no commissions were paid but there was a spread charged by the broker between the purchase and sale price of the bonds. The brokerage on the trade is not governed by any securities regulation. The specific brokerage from the trade: A) cannot be used to benefit any other client. B) can be used to benefit another client as long as Davis receives consent from Richards either before or after the trade. C) can be used to benefit another client as long as Richards benefits from other the client’s brokerage in the future. D) can be used to benefit another client as long as Davis receives prior consent from Richards. Your answer: A was incorrect. The correct answer was D) can be used to benefit another client as long as Davis receives prior consent from Richards. Prior consent must be given in the case of a principal trade. Scott Burroughs is a portfolio manager for a firm that claims it is in compliance with CFA Institute Soft Dollar Standards. In purchasing bonds for the account of the pension fund of Sheets Company, no commissions were paid, but there was a spread charged by the broker between the purchase and sale price of the bonds. The trade is governed by the Investment Company Act of 1940 which requires that the trade must benefit only the client. Which of the following statements regarding client brokerage is TRUE? The specific brokerage from the trade: A) can be used to benefit another client only if Burroughs receives prior consent from Sheets. B) cannot be used to benefit any other client. C) can be used to benefit another client as long as Burroughs receives consent from Sheets, either before or after the trade. D) can be used to benefit another client as long as Sheets benefits from the other client’s brokerage in the future. Answer is B. The Soft Dollar Standards do not supersede any law, and the law states that the brokerage must be used solely for the client’s benefit. The client cannot wave these provisions by consent. So is this discrepancy solely due to the bit about “Investment Company Act of….”, which is specific just to the second question and doesn’t apply to the rest of the curriculum? Therefore, Soft Dollars CAN be used to benefit another client IF they get prior consent?

I believe the consent portion only applies to principal trades (broker makes his money on the spread) as opposed to agency trades (broker makes his money with stated commission). I’m assuming the reason is the principal trades are harder to track the compensation the broker is receiving, unlike agency trades where the compensation is broken out as a Commission per share.