The text says that the Investment Manager need to disclose “For a specific Client account: the total amount of Commission generated for that Client through a Soft Dollar Arrangement…” I am confused by a few things: 1. The commissions are paid to a Broker and the the Investment Manager may receive some sort of “soft dollar” benefit. Is this standard requiring the manager to disclose the net of these two items or each item separately? 2. The use of word “generated” implies that there should be some net benefit to the client. What kind of Broker will be providing a service where he ends up paying for providing it? Any comments? Thanks
- From what I’ve read in the curriculum, those two items should be reported separately. 2. I’m not sure because I haven’t had any firsthand experience, but I’m pretty sure brokers do this all the time in order to attract business. They aren’t dealing with retail clients, so they can still make money even after taking into account the cost of the research provided.
- Clients can request a report of their Soft Dollar benefits so managers needs to be able to account for it separately. They also have to track commissions paid to make sure it’s competitive/well executed for the clients. 2. The word “generated” does not imply that there should be some net benefit to the client. It’s only saying if the broker is paid commissions and if there are any Soft Dollar benefits, it belongs to the Client and not the money manager who could misdirect it for other usage. In the industry, if brokers are executing trades at a lost, they are likely doing it to get investment banking business from the client firm and are still making money selling a trading service at a discount. I don’t think the CFA Code is talking about brokers trading at a lost.