Barron's

Mailbag: Soft Policy
February 9, 2004
To the Editor:

Bill Alpert's Jan. 26 Review & Preview "Big Foot" item made some insightful observations about soft dollars and the ways in which the recent Investment Company Institute proposal would, if adopted by the SEC, squash the very independent research that has been touted as a potential counterweight to often-conflicted Wall Street research.

I would also note that such an outcome could hurt some independent brokerage firms that provide high-quality execution services on an agency basis, refusing to compete with their own customers for trades by taking principal positions, as the bulge-bracket broker-dealers typically do. Since certain buy-side customers require research coupled with execution services, and the independent brokers don't necessarily produce their own research, they may also be disadvantaged by the implementation of the ICI proposal, which would effectively ban soft-dollar payments to independent research firms while maintaining them for the large Wall Street firms. Overall execution quality could suffer.

If the SEC determines that soft dollars are a bad idea, it should ban them and unbundle research from execution completely. If it feels disclosure would solve the problem, it should mandate that. Whatever the solution, however, it ought to be something that is consistently applied to all market participants, and certainly not favor the bulge-bracket firms that have been accused of serious conflicts of interest.

Allowed to compete on a level playing field, both independent-research shops and independent agency-only brokerage firms will prosper and offer better options to the investing public.

Joe Gawronski New York City

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