Just a quick question Page 130 of Book 1 says that the CFA soft dollar standards are meant to go beyond those practices that currently claim Section 28(e) Safe Harbor protection Are we to ignore the safe harbour protection (since this only applies in the United States) and assume that the CFA Soft Dollar Standards as outlined in the book are the only thing that is important when answering Qs? For example, CFA Soft Dollar Standards say you have to seek best execution with minimal transaction costs regardless of principal/agency trade. Safe Habour says that best execution may not be the most important factor if the research provided is better. How do you reconcile this when answering the questions? Thanks
I’m not sure I see a contradiction there… CFA allows for soft dollars to go to research (for example) provided benefits accrue to the client, right?
Yes, but if the execution is not the best because transaction costs are higher (for example), CFA says that even though the brokerage may be better, the firm should strive for best execution above all. s. 28(e) says that the better brokerage can offset the relatively poorer execution. There is a contradiction there. In other words: s. 28(e) May go with poorer execution if brokerage outweighs execution performance deficit CFA: Never go with the poorer execution. That is primary. If brokerage happens to be better, that’s fine, but that is not the primary responsibility.
+1 execution quality is top priority - its a bad trade if we get bad execution due to better brokerage.