SEC Releases Interpretive Guidance on Soft Dollars
An investment adviser with authority to place brokerage orders for an advisory client has a duty to obtain best execution for its advisory client. Section 28(e) of the Securities Exchange Act of 1934, stablishes a safe harbor that allows an investment adviser to use client funds to purchase “brokerage and research services” for its managed accounts under certain circumstances without breaching its fiduciary duties to clients. The commissions paid may be higher than those which might otherwise have been paid to another broker if those services had not been provided. This practice is sometimes referred to as using “soft dollars” for research and information. This memorandum details the SEC's recently-released interpretive guidance on such soft dollar and related issues.