Alert October 05, 2010

SEC Staff Provides Guidance Regarding Adviser Status of Broker Dealer Providing Research Services Through Commission Pooling Arrangement

The staff of the SEC’s Division of Investment Management provided guidance to the effect that a broker-dealer would not be an investment adviser with respect to clients of an investment manager that used research services provided by the broker‑dealer through a soft-dollar commission pooling arrangement in making investment decisions for those clients’ accounts, provided certain conditions were met.  The request for guidance arose out of a concern that if the opposite were true, i.e., the broker-dealers were investment advisers with respect to the clients of investment managers using the broker-dealers’ research services acquired through a soft dollar pooling arrangement, then the broker-dealers would be subject to the restrictions of Section 206(3) of the Investment Advisers Act of 1940 if they engaged in principal transactions with those clients.