|Author||Topic: What are soft dollar commissions|
|I have been reading so much things about Soft Dollars but i have to admit my failure to understand the concept.
In the CFAI book is written that :
“Conflicts arise when an investment manager uses client brokerage to purchase research services that benefit the investment manager.” So the investment manager purchases research from the client or the broker ? and with who's money ? I thought that it was investment manager that paid brokerage with researches : And if the portfolio manager pays the fees with researches, so client pays the fees to the portfolio manager ? And also in the CFAI book : “Whenever members or candidates use client brokerage to purchase goods or services that do not benefit the client, they should disclose to clients the methods... etc" How can they “use” client brokerage to purchase anything ? For me it is like saying : “i use my current liabilities to buy assets…” no sense. Thanks for support, Coritani.
|Suppose that a client of yours needs to make a trade: sell security X, buy security Y. You have a choice of two brokers through which you can execute the trade: Broker A and Broker B. Broker A charges $15 per trade, and all you get is the trade. Broker B charges $20 per trade, but in addition to the trade, they also give you access to their proprietary analysis on securities (including security X and security Y).
The extra $5 you’d pay to broker B is soft dollars: it’s commissions paid not to execute the trade but to receive extra goods/services.
|Hmmm... i though that the access to their proprietary analysis on securities is the soft dollar. not the $5.|
CFA Discussion Topic: What are soft dollar commissions
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