Conquering Current Compliance Challenges
Nov. 13, 2019 | 2:00 - 2:30 PM EST

Conquering Current Compliance Challenges
Recorded: Sept. 11, 2019 
Includes: Best Practices, Key Regulatory Issues and Compliance Tips
Includes: 23 Best Practices, 5 Peer-tested tools and 15 No Action Letters

The concept of soft dollars can be a difficult one to grasp. Let’s use the SEC’s definition of soft dollars:
arrangements under which products or services other than execution of securities transactions are obtained by an adviser from or through a broker-dealer in exchange for the direction by the adviser of client brokerage transactions to the broker-dealer.
This can cover a lot of items – from legitimate research to junket-like conferences. Because soft dollars can be an invitation for abuse, boundaries have been drawn over the years.

The obligation for advisers to care about these boundaries stems from your fiduciary duty to clients. Does it really serve their best interests if an adviser sends all trades to the most expensive broker because that broker provides free research to the adviser? Should clients be paying for the higher costs when one could argue the real benefits of soft dollar products go to the adviser and not to its clients? Has the practice even been disclosed to clients?

Helpful research

Legitimate research that assists an adviser to make better investment decisions for clients clearly fits within the soft dollars framework. Advisers should look outside the Advisers Act to the Exchange Act for additional guidance, specifically section 28E (soft dollar safe harbor) of the Act.
Another helpful resource is the SEC’s guidance on the topic. It includes the concept of “mixed use,” soft dollar benefits that can cross the lines between what’s acceptable and what can be questionable. These types of products can require special handling by an adviser’s CCO.
The SEC has listed items it considers non-qualified under mixed-use, things like chartered financial analyst exam review courses, membership dues, professional licensing fees, office rent, utilities, phone, carpeting, marketing, entertainment, meals, copiers, office supplies, fax machines, couriers, backup generators, electronic proxy voting services, salaries, and legal and travel expenses.
Soft dollars can be a slippery topic that deserves your attention. Use the guidance contained throughout this section to help ensure you stay on the right side of the compliance line.

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