Soft dollar standard question question, fiduciary, different, disclosed, benefit

thecfawannabe

“It is permissible to use client brokerage from AGENCY TRADES to obtain research which may not directly benefit the client. Over time, however, the client should receive a benefit from the research”.
“As long as no fiduciary regulations apply, it is permissible to use client brokerage obtained from PRINCIPAL TRADES to benefit other client accounts, as long as this is disclosed to the client and prior consent is received”.
Does anybody see the logic of different Agency and Principal trades treatment? If both agency and principal trades are client’s asset, why are there such exceptions?
Thank you

thecfawannabe

my understanding is that a principal transaction means that the broker is selling you an asset out of its own inventory. So the ‘commission’ is implicitly built into the asset’s price. I suppose because it is less transparent (relative to broker commissions), you as the investment manager need to be more up front with clients about it…