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:
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A. B. C. D. E.B
The manager must seek BEST price and execution.
The correct answer is D. "None of these answers."
Soft-dollar practices refer to the use of commission dollars generated from trading activity to pay for goods and services other than traditional brokerage services, such as research reports, software, or market data. Various countries' securities laws may permit a manager to pay up for these goods and services without violating their fiduciary duty, as long as certain requirements are met. Let's analyze each answer choice in detail:
A. The manager's soft-dollar practice must be disclosed. This answer choice is a typical requirement. Managers engaging in soft-dollar practices are generally required to disclose their practices to their clients, investors, or relevant regulatory authorities. Disclosure ensures transparency and allows investors to understand how the manager is using commission dollars for non-traditional brokerage services.
B. The manager may seek satisfactory price and execution. This answer choice is also a typical requirement. When utilizing soft-dollar practices, the manager must seek satisfactory price and execution for the securities transactions involved. This means that the manager should still prioritize obtaining favorable prices and efficient execution for their clients' trades, even if they are using commission dollars to pay for additional goods or services.
C. The goods or services purchased must be for "research service." This answer choice is a typical requirement. Soft-dollar practices are primarily intended to be used for purchasing research services that benefit the manager's investment decision-making process. This can include research reports, market data, or access to research platforms. The goods or services obtained through soft dollars must have a direct connection to enhancing the manager's ability to make informed investment decisions.
E. The commission paid must be reasonable in relation to the research and execution services received. This answer choice is also a typical requirement. The commission paid by the manager for executing trades and obtaining research services must be reasonable and justifiable in relation to the value of the services received. This requirement ensures that the manager is not overpaying for goods or services and that the commission dollars are being used effectively to benefit the investment process.
Given that options A, B, C, and E are all typical requirements for using soft dollars without violating fiduciary duty, the correct answer is D, "none of these answers."