Fidelity Investments’ announcement last month that it struck a deal with Thomas Weisel Partners Group for Weisel to separate the fees it charges for research and trading underscores the need for boards to evaluate best execution on a regular basis.
This issue may come up during the annual review of advisory contracts when the board has to look at advisor’s profitability as well as fund performance. If a large profitable manager has some underperforming funds, the board might suggest the advisor boost performance by cutting down on the commission expense, an attorney suggested
“Certainly boards of larger fund complexes that would have the market clout to get this are going to put more pressure on the management company to unbundle or explain why it’s not a good idea,” a lawyer said. “Smaller fund companies probably won’t have the same kind of pressure, unless it becomes much more of an industry standard.”
Unbundling has struck a fancy with fund boards, but soft dollars are legal. “The abuse of soft dollars is what’s bad, not the use of it,” said Thomas Westle, partner with Blank Rome. “As long as they are done in accordance with the safe harbor I don’t know why we would have to stop using them or why we should stop using them.”