ICI Comments on U.K. Soft Dollar ProposalWashington, DC, January 13, 2006 - The Institute supports efforts by the U.K. Financial Services Authority (FSA) to narrow and more clearly define what types of services may be obtained by fund managers through client commission arrangements, but, in a recent comment letter, expresses concerns with the approach the FSA proposes to take. Background
In October 2005, the FSA published "Bundled Brokerage and Soft Commission Arrangements for Retail Investment Funds," a consultation paper that addressed two main issues: the use of brokerage commissions for research products and services (commonly referred to as "soft dollars") and the ability of investment advisers to take into account sales of fund shares in selecting a broker-dealer to execute transactions in portfolio securities (often referred to as "directed brokerage"). ICI Position
In a recent comment letter, the Institute expresses serious concern with the FSA's approach to "unbundled" disclosure (that is, separating the execution and research components of commission payments). Under the FSA's approach, fund managers are required to provide unbundled disclosure to clients, but brokers are not required to provide unbundled disclosure to managers. ICI identifies two shortcomings with this approach: - fund managers will be assuming liability for disclosing information that they cannot know; and
- the information disclosed will not be directly comparable and may result in market confusion, rather than increased market efficiency and competition.
The Institute also states its belief that requiring brokers to provide unbundled disclosure could subject investment managers to significant liability risks without generating meaningful information for investors. Related Links
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