SECTION 28(E)

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Anonymous
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158629
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SECTION 28(E)
Updated:
2012-06-14 16:02:43
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SECTION 28
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SECTION 28(E) SAFE HARBOR
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  1. WHAT ARE SOFT-DOLLARS ARRANGEMENTS?
    ARRANGEMENTS UNDER WHICH PRODUCTS OR SERVICES ARE OBTAINED BY AN ADVISER FROM OR THROUGH A BROKER IN EXCHANGE FOR THE DIRECTION BY THE ADVISER OF CLIENT BROKERAGE TRANSACTIONS -- DIRECTED TRANSACTIONS
  2. WHAT IS SECTION 28(E) SAFE-HARBOR UNDER THE SECURITIES EXCHANGE ACT OF 1934?
    IT PROTECTS ADVISERS FROM BREACHING THEIR FIDUCIARY RESPONSIBILITY BY PAYING MORE THAN THE LOWEST AVAILABLE COMMISSION RATES IN EXCHANGE FOR RESEARCH AND EXECUTION
  3. WHAT ARE THE TRADITIONAL FIDUCIARY PRINCIPLES?
    A FIDUCIARY CANNOT USE ASSETS ENTRUSTED BY CLIENTS TO BENEFIT ITSELF.
  4. WHEN DID THE SEC ABOLISH FIXED COMMISSION RATES?
    SOON AFTER MAY 1, 1975.
  5. WHAT DOES SECTION 28(E) STATES?
    A PERSON WHO EXERCISES INVESTMENT DISCRETION WITH RESPECT TO AN ACCOUNT WILL NOT BE DEEMED TO HAVE ACTED UNLAWFULLY OR TO HAVE BREACHED A FIDUCIARY DUTY SOLELY BY REASON OF HIS HAVING CAUSED THE ACCOUNT TO PAY MORE THAN THE LOWEST AVAILABLE COMMISSION IF SUCH PERSON DETERMINES IN GOOD FAITH THAT THE AMOUNT OF THE COMMISSION IS REASONABLE IN RELATION TO THE VALUE OF THE BROKERAGE AND RESEARCH SERVICES PROVIDED.
  6. WHAT IS THE DEFINITION OF WHEN A PERSON IS DEEMED TO BE PROVIDING BROKERAGE AND RESEARCH SERVICES?
    • A PERSON PROVIDES BROKERAGE AND RESEARCH SERVICES INSOFAR AS HE:
    • - FURNSIHES ADVICE DIRECTLY OR THROUGH PUBLICATIONS OR WRITINGS ABOUT THE VALUE OF SERCURITIES, THE ADVISABILITY OF INVESTING IN, PURCHASRING, OR SELLING SECURITIES, OR THE AVAILABILITY OF PURCHASERS OR SELLER OF SERCURITIES;
    • - FURNISHES ANALYSES AND REPORT CONCERNING ISSUERS, INDUSTRIES, SECURITIES, ECONOMIC FACTOS AND TRENDS, PORTFOLIO STRATEGY, AND PERFORMANCE OF ACCOUTNS; OR
    • - EFFECTS SECURITIES TRANSACTIONS AND PERFORMS FUNCTIONS INCIDENTAL THERETO (SUCH AS CLEARANCE, SETTLEMENT, AND CUSTODY).
  7. HOW IS SECTION 28(E) TO BE RULED?
    BY THE SEC WHICH REQUIRES THAT INVESTMENT ADVISERS DISCLOSE THEIR SOF-DOLLAR POLICIES AND PROCEDURES.
  8. WHAT IS AN ADVISER OBLIGATED TO DO UNDER THE IAA OF 1940 AND STATE LAW ACT?
    TO ACT IN THE BEST INTERESTS OF ITS CLIENT.
  9. WHAT DOES THE FIDUCIARY DUTY PRECLUDE ADVISERS FROM DOING?
    USING CLIENTS ASSETS FOR ITS OWN BENEFIT OR THE BENEFIT OF OTHER CLIENTS WITHOUT OBTAINING THE CLIENT'S CONSENT BASED ON FULL AND FAIR DISCLOSURE.
  10. WHAT DOES THE ANTIFRAUD PROVISIONS OF THE SECURITIES AND EXCHANGE ACT OF 1934 REQUIRE AND ADVISER TO DO IN THE EVENT HE IS USING CLIENT ASSETS FOR HIS OWN BENEFIT OR FOR THE BENEFIT OF OTHERS?
    FULL AND FAIR DISCLOSURE TO THE CLIENT OF ALL MATERIAL FACTS CONCERNING THE ARRANGEMENT. THE SEC HAS STATED "THE ADVISER MAY NOT USE ITS CLIENT'S ASSETS FOR ITS OWN BENEFIT WITHOUT PRIOR CONSENT, EVEN IF IT COSTS THE CLIENT NOTHING EXTRA."
  11. HOW IS CONSENT PROVIDED UNDER THE SECURITIES AND EXCHANGE ACT OF 1934?
    • CONSENT MAY BE EXPRESSLY PROVIDED BY THE CLIENT, OR
    • IT MAY BE INFERRED FROM ALL OF THE FACTS AND CIRCUMSTANCES, INCLUDING THE ADVISER'S DISCLOSURE IN ITS FORM ADV.
  12. WHAT DOES SECTION 28(E) NOT PROTECT THE ADVISER FROM?
    AGAINST CHARGES OF VIOLATIONS OF THE ANTIFRAUD PROVISION OF THE FEDERAL SECURITIES LAWS ARISING FROM CHURNING AN ACCOUNT, FAILING TO OBTAIN THE BEST PRICES OR BEST EXECUTION, OR FAILING TO MAKE REQUIRED DISCLOSURE. ADVISERS ARE REQUIRED TO DISCLOSE THE PRODUCTS AND SERVICES RECEIVED THROUGH SOFT-DOLLAR ARRANGEMENTS, REGARDLESS OF WHETHER THE SAFE HARBOR APPLIES.
  13. WHAT ARE INVESTMENT ADVISERS OBLIGAGETED TO DISCLOSE ABOUT THEIR BROKERAGE ALLOCATION POLICIES TO CLIENTS IN ITEMS 13 AND 13 OF PART 2A OF FORM ADV?
    • IF THE VALUE OF PRODUCTS, RESEARCH, AND SERVICES PRVOIDED TO AN INVESTMENT ADVISER IS A FACTOR IN SELECTING BORKERS TO EXECUTE CLIENT TRADES. iF SO, THE ADVISER MUST INCLUDE IN FORM ADV:
    • -THE PRODUCTS, RESEARCH, AND SERVICES.
    • - WHETHER CLIENTS MAY MORE COMISSIONS THAN AT OTHER BROKERS.
    • - WHETHER RESEARCH IS USED FOR ALL CLIENT ACCOUNT OR JUST THOSE PAYING FOR IT. AND
    • - ANY PROCEDURES THE ADVISE HS INSTITUTED OVER THE LAST FISCAL YEAR TO DIRECT CLIENT TRANSACTIONS TO A PARTICULAR BROKER IN RETURN FOR SOFT-DOLLAR RECEIVED IN THE FORMOF PRODUCTS, RESEARCH AND SERVICES.
  14. WHAT IS THE PURPOSE OF THE DISCLOSURE REQUIREMENTS UNDER 28(E)?
    TO PROVIDE CLIENTS WITH MATERIAL INFORMATION ABOUT THE ADVISER'S BROKERAGE SELECTION PRACTICES THAT MAY BE IMPORTANT TO CLIENTS IN DECIDING TO HIRE OR CONTINUE A CONTRACT WITH AN ADVISER AND ALLOW THEM TO DETERMINE IF THERE ARE ANY CONFLICTS OF INTEREST IN THE ADVISERS PRACTICES.
  15. WHAT ADDITIONAL REQUIREMENTS ARE IMPOSED BY SECTION 28(E) WHEN AN ADVISER ACCEPTS SOFT DOLLARS
    • -THE ADVISER MUST EXPLAIN THAT HE BENEFITS BECAUSE HE DOES NOT HAVE TO PRODUCE OR PAY FOR THE RESEARCH OR OTHER PRODUCTS AND SERVICES, AND
    • - THE ADVISER HAS AN INCENTIVE TO SELECT OR RECOMMENT BROKERS BASED ON HIS OWN SELF INTEREST AND NOT ON THE CLIENT'S INTEREST.

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