Q17. Which of the following is one of the four requirements for meeting fiduciary obligations with regard to soft dollar arrangements? Commissions: A) paid must be reasonable in relation to the research and execution services provided. B) paid must be held in escrow for the benefit of the client. C) paid must be minimized.
Q18. William Nagle, CFA has his own money management firm. He has a wide range of clients. Some of his clients are entirely invested in the money market while others like to actively trade stocks including hot new issues and options. Over the years Nagle has developed a good relationship with Presley Brothers Brokerage who executes his trades. ne of the reasons Nagle initially chose and continues to use Presley Brothers is that Presley Brothers provides to Nagle a free high-speed Internet service plus the services of a top-rated research firm over the Internet. That service provides up-to-the minute recommendations. Although the fees Presley Brothers charges Nagle’s clients per trade are slightly higher than competing firms, Nagle feels their speed of execution is worth the cost. Nagle has found the recommendations from the Internet research firm have been useful for some of his more active clients. Presley Brothers also underwrites stocks and gives Nagle the opportunity to buy shares in initial public offerings for his clients. The amount of IPO stock offered to Nagle is proportional to the amount of commissions that Nagle has generated. As a rule, Nagle allocates the IPO shares to the clients who generated the most commissions in the previous year. He discloses this practice to all his clients, and since Nagle started dealing with Presley Brothers Brokerage, all of the IPOs Presley Brothers has underwritten have made a profit for Nagle’s clients. Therefore, Nagle has a standing order with Presley Brothers to purchase as much of each IPO that Presley Brothers can give him. Once Nagle gets the IPO issue, he divides it into three allocations and begins calling his clients one at a time, beginning with the top commission-generating client, and offers to sell an allocation to each client until all three allocations are sold. Presley Brothers also offers Nagle another perk for doing business with the firm. If Nagle generates a certain minimum in commissions, then Presley Brothers provides Nagle with the opportunity to offer discount commissions on option trades. In addition to that, exceeding the commission quota earns Nagle an all-paid weekend trip to a resort where Presley Brothers gives seminars to managers like Nagle who have exceeded the commission quota. The trip does include seminars that provide valuable information on the products like mutual funds that Presley Brothers offers and financial markets in general, but it also takes place at a posh resort with many free amenities. In recent years, Nagle has exceeded the commission quota and has been able to take the trip. His main focus on the trips has been to learn something at the seminars that he can offer to his larger clients who generate the most business. The trips have given Nagle sufficient information on Presley Brothers’ products so that Nagle has decided to satisfy all of his clients’ needs with Presley Brothers products. By choosing to use Presley Brothers Brokerage for the indicated reason, has Nagle broken the standard concerning soft dollars? A) Yes, because his clients pay higher fees and he gets free Internet service and the services of a research firm. B) No, because although his clients pay higher fees, the services are worth it. C) Yes, because his clients pay higher fees and he gets free Internet service only.
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发表于 2009-1-7 11:13
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