In the previous article, we briefly discussed the idea of soft dollars. In this article we discuss the soft dollar standards provided by CFA. Each standard is followed by one required practice, but this may not be the only requirement for a given standard.
- General principles for the investment firm – always act in the benefit of the client and place those interests before his/her own.
- Investment firm relationship with client – the firm must disclose soft dollar arrangements to a client before trading a client’s account under these arrangements.
- Selection of broker – the investment manager must select the broker with best total execution value received by the client.
- Firm determination of qualified research for appropriate soft dollar purchase – the investment manager must be able to document the basis for his/her determination of qualified research purchased with soft dollars.
- Client directed brokerage – a client may direct his or her trading business to a specific broker, but soft dollar services from another client may not be used to benefit the client directing brokerage.
- Disclosure terms for investment firms claiming soft dollar compliance – soft dollar arrangements must be clearly disclosed to all clients and potential clients.
- Record keeping for investment firm – a firm must document its allocation process for the use of client brokerage to obtain mixed use products.
