Securities Laws and Fiduciary Duty: Typical Requirements

Typical Requirements for Paying up for Goods and Services without Violating Fiduciary Duty

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Question

Various countries' securities laws permit a manager to pay up for goods and services without violating the manager's fiduciary duty, so long as the requirements of the law are followed. Each of the following are typical requirements, except

Answers

A. the manager's soft-dollar practice must be disclosed.

B. the compensation received for engaging in the paying up must be reported in writing to the manager's employer.

C. the commission paid must be reasonable in relation to the research and execution services received.

D. the goods or services purchased must be for "research service."

E. at all times, the manager must seek best price and execution.

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Explanations

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A. B. C. D. E.

When paying up for goods and services, the requirements to be met include:

- ensuring that the goods or services purchased must be for "research service;"

- the commission paid must be reasonable in relation to the research and execution services received;

- the manager's soft-dollar practice must be disclosed, and

- at all times, the manager must seek best price and execution. However, there is no requirement for any disclosure of compensation to the manager's employer.

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