Does purchased research with brokerage have to directly benefit the client?

CFA Level II
#1

I feel like I’ve seen conflicting writiings. If you purchase research with comissions under soft dollar standards, does this have to directly benefit THAT SPECIFIC client?

I’ve seen, No, Yes, and Yes only for client directed brokerage,

#2

If it isn’t client directed brokerage, it doesn’t have to affect the client directly at that time I believe. However over time, the client should receive benefits from soft dollars.

Client Directed brokerage it has to affect that direct client. The reasoning is that the client asked you to pick that direct broker so the soft dollars relating specifically to that broker are owned solely by that client.

#3

“The Investment Manager should assure that, over time, all Clients receive the benefits of Research purchased with Client Brokerage. 1. Agency Trades. While it is permissible for the Investment Manager to use a Client’s Brokerage derived from Agency Trades to obtain Research that may not directly benefit that particular Client at that particular time, the Investment Manager should endeavor to ensure that, o ver a reasonable period of time , the Client r eceives the benefit of Research purchased with other Clients’ Brokerage. 2. Principal Trades. The Investment Manager should determine if the particular Principal Trade is subject to certain fiduciary requirements (e.g., ERISA, Investment Company Act of 1940) which require that Client Brokerage derived from Principal Trades must benefit the Client account generating the Brokerage. If such requirements do not apply, it is permissible to use Client Brokerage derived from Principal Trades to benefit Client accounts other than the account generating the Brokerage if the Investment Manager discloses this practice and obtains prior consent from the Client.” (Institute 181)

#4

Thanks - any idea how we would know if it’s ERISA or investment company act of 1940?

#5

The “reasonable time frame” drives me nuts. It’s subjective on any level as an item of rule. Lawyers and examiners can stretch it to any length.

#6

The whole soft dollar is total corruption of the financial empire. If the regulators completely separate order execution business to brokers and research to companies specializing on research, soft dollar is gone and no single person has the burden.

#7

I think they would tell you specifically whether its a principal or agency trade. or even ERISA or non-ERISA insti client. so no worries there.

#8

Band2 that help nodoby in particular as Clients are not the most knowledgeable nor most available people to decide which brokerage to go to. Investment managers handle the analysis and research so it is better for them to had the autonomy and authority to shop for the best execution. CFA standards are to protect client and it is far better than strict rules to abide by. the costs to have them are too great