土豆妮

Springfield Investment Advisors uses soft dollars generated with mutual fund transactions to get software that is used 50 percent of the time to assist in the management of client assets. Which of the following statements is TRUE? This action is:

A) not permissible since items purchased must provide 100% of their benefits to clients.

B) permissible only if the firm pays for 50% of the software cost with its own resources.

C) permissible since items purchased with soft dollars must be tangible, and software is intangible.

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As long as the software is used for the benefit of clients 50% of the time it is permissible to pay for 50% of the software with soft dollars. The remainder must be paid for by the firm with its own resources.

土豆妮

Springfield Investment Advisors uses soft dollars generated with mutual fund transactions to get software that is only useful for the management of the investment firm. Which of the following statements is TRUE? This is:

A) not permissible since items purchased with soft dollars must provide a benefit to the client.

B) not permissible since items purchased with soft dollars must provide at least 50% of their benefits to the client.

C) permissible since items purchased with soft dollars must provide a benefit to the firm.

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This action is not permissible – items purchased must provide a benefit to the client. The firm is responsible for securing assets necessary for the operation of the firm from the firm’s resources.

土豆妮

Jason Wariner manages an equity mutual fund and directs trades to various brokers on the basis of their research coverage of the equity being traded. The commissions paid vary somewhat (i.e., he knows that he could occasionally save on the commission by dealing with a broker other than the one handling the transaction) but are believed to be reasonable in relation to the research and execution services provided. With regard to this practice, which of the following statements is TRUE? This action is:

A) not permissible; Wariner is in violation of his fiduciary duties.

B) permissible; Wariner is not in violation of his fiduciary duties.

C) not permissible; Wariner is not in violation of his fiduciary duties.

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Since the research is relevant to the client assets and is used for the benefit of the client, the action is permissible, and there is no violation so long as the value of the research obtained is commensurate with the differential in cost paid.

土豆妮

Waldmann Brothers & Company offers Pyramid Investment Advisors the use of its proprietary investment allocation software. This package is purported to improve the risk-return trade-off for assets under management, and is also useful for the generation of various diagnostic reports that will benefit Pyramid. Goldman, Pyramid’s CEO estimates that about 70 percent of the value of the package is the improvement of the risk-return trade-off, and that this will be valuable to the holders of Pyramid’s Growth Fund. The remaining value of the package accrues to Pyramid in the form of increased management efficiency. If the value of the package is $50,000 per year, how much of this must be paid by Pyramid?

A) $35,000.

B) $50,000.

C) $15,000.

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Since approximately 30 percent of the value of the asset accrues to the management of the investment firm, 0.30 * 50,000 = $15,000 should be paid by Pyramid. The remainder can be funded with soft dollars, since the balance of the value will accrue to the clients who will directly benefit from the acquisition of the asset.