MoeMoney Investment Advisers uses the services of two broker-dealers exclusively when it executes trades for its clients' accounts. The larger of the two broker-dealers provides MoeMoney with research from its analyst department in return for the business and also serves as the custodian for some of MoeMoney's clients' accounts. The smaller of the two broker-dealers picks up the utility bill for MoeMoney. MoeMoney is careful to disclose this form of "soft dollar" compensation to its clients. Is it in violation of any securities laws?

Question

Quizplus · Accepted Answer

Yes. MoeMoney is in violation of securities laws in accepting payment of its utility bills for directing business to the smaller broker-dealer because this form of soft dollar compensation is prohibited. Some forms of soft dollar compensation are permitted, such as the research and custodial services MoeMoney receives from the larger broker-dealer, but the payment of any office overhead expense is not. Allowed soft dollar compensation is deemed to benefit both the investment adviser and its clients; soft dollars that seem to benefit only the adviser are not allowed.

MoeMoney Investment Advisers Uses the Services of Two Broker-Dealers Exclusively