Soft Dollar Standards / Best Execution

CFA Level II Ethics
#1

From Soft Dollar Standards:

“In Selecting Brokers, the Investment Manager must consider the capabilities of the Broker to provide Best Execution.”

If an Investment Manager then makes a disclosure such as “We engage in soft dollar arrangements whereby the commission paid to such brokers may be higher than the commission another broker would charge for the same transaction,” then why isn’t the Investment Manager automatically in violation of its obligation per Soft Dollar Standards to achieve Best Execution? Is it that the definition of Best Execution is more broad than simply “lowest commission,” or is it that the Investment Manager is not technically required in all instances to actually achieve Best Execution? Or is it something else?

#2

Yes Best Execution is lot broader than simple lowest commission. I think its a mix of quantitative and qualitative factors which say best execution… Imagine the loss if a broker who is too slow to execute the final trade, but his charges are the least… Opportunity cost is also involved right, while making a trade? So,

In short the Investment manager should also have a “reasonable basis” in selecting the “best execution” smiley

Hope this helps!