client directed brokerage

In CFAI and Schweser principle V states as required: “Investment manager must not use Brokerage from another client account to pay for a product or service purchased under the client directed brokerage.” What does this mean? how can brokerage from another account not pay for a product/service it was already purchased via client directed brokerage?

I think the text is confusing on this topic, well completely confusing to be totally honest. I may be completely wrong, but isn’t “client direct brokerage” just brokerage that is going right back into the client’s pocket in the form of benefits and execution services. I suppose it would not be fair to take other client brokerage and use it to benefit the client directed account. That’s the way I think of it. I might be completely wrong on it though.

Client directed brokerage is when a client of yours instructs you to use broker X and you accrue soft dollars from this arrangement. The soft dollars in this case need to be used on that specific client.

Client directed brokerage is when the client specifically tells the investment manager “Dude, please direct $200k worth of soft dollar commissions from my money to Morgan Stanley for the year (or whoever else)” The investment manager will do this even if the broker that the client is directing the brokerage too is horrible at execution, etc. This amount is not allowed to be used to gain benefits for all other clients that the manager is handling That’s my take on it. I’ve never seen it happen in real life (at equity hedge funds at least) but I could see it happening with a manager handling more than one fund with each fund being totally unrelated. Someone correct me if i’m wrong.

verse, you’re exactly right and I see it all the time at my asset management firm