Washington (Dec. 18, 2003) — A group of broker/dealers has blasted a proposal by the Investment Company Institute that would limit the ability of mutual funds and other fiduciary money managers to get independent research from broker/dealers.

An ICI proposal unveiled this week called on the Securities and Exchange Commission to narrow significantly its definition of “permitted research” to curb the research that can be acquired with soft dollars. The ICI also urged the SEC to prohibit all investment advisers, including fund managers, from using soft dollars to acquire any third-party research products and services. The proposal would limit the use of soft dollars to “proprietary research that reflects unique intellectual content” and that isn’t otherwise available in the marketplace.

The Alliance in Support of Independent Research called the proposal “premature and without factual basis” and said the proposal would “cripple” the independent research industry. Lee Pickard, counsel to the Alliance and a former director of the SEC's Division of Market Regulation, said the proposal would impair the ability of small money managers and their investment funds to compete with their larger peers, and would limit the ability of small broker/dealers to compete with large Wall Street firms, “ultimately resulting in higher commission rates to investors."

The alliance said the proposal would create “inappropriate incentives for money managers” to use brokerage firms that bundle execution and other proprietary services. “Firms without a large client base over which to spread the resulting increase in overhead expenses will be forced to either raise advisory fees or limit their use of investment research,” the alliance said. It added that the proposal would impair the ability of small and midsized broker/dealers, which lack the resources to employ an internal research staff and must contract to buy the research of independent research providers, to compete with larger firms.


— WebCPA staff

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