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:
Click on the arrows to vote for the correct answer
A. B. C. D. E.A
The good and services purchased must be for "research service."
The correct answer is A. the goods or services purchased must be for "brokerage service."
Soft dollars refer to the practice of an investment manager using client brokerage commissions to pay for research and other services that benefit the manager and their clients. These services can include research reports, data subscriptions, software, and other tools that aid in investment decision-making.
Securities laws in various countries allow managers to use soft dollars, as long as certain requirements are met. These requirements are designed to ensure that the manager is acting in the best interest of their clients and not abusing the use of client commissions.
Let's analyze each answer choice:
A. the goods or services purchased must be for "brokerage service." This answer choice is incorrect. The requirement that the goods or services purchased must be for "brokerage service" is not a typical requirement for using soft dollars. Soft dollars can be used for a wide range of research and execution services beyond just brokerage services.
B. the commission paid must be reasonable in relation to the research and execution services received. This answer choice is correct. One of the typical requirements for using soft dollars is that the commission paid must be reasonable in relation to the research and execution services received. This means that the manager should ensure that the commission paid is justified based on the value and quality of the services provided.
C. none of these answers. This answer choice is incorrect. There are requirements for using soft dollars, so this statement is not accurate.
D. at all times, the manager must seek best price and execution. This answer choice is correct. Another typical requirement for using soft dollars is that the manager must seek best price and execution. This means that the manager should strive to obtain the most favorable terms and pricing for the goods and services acquired using soft dollars.
E. the manager's soft-dollar practice must be disclosed. This answer choice is correct. Disclosure is another typical requirement for using soft dollars. The manager must disclose their soft-dollar practices to their clients, typically in the form of written disclosures or in the investment advisory agreement.
In summary, the correct answer is A. the goods or services purchased must be for "brokerage service." This requirement is not typically necessary for using soft dollars, while the other answer choices are typical requirements for the use of soft dollars.