I'm a registered investment adviser. In completing the Form ADV Part I there is a question that asks if I "receive research or other products or services other than execution from a broker-dealer or a third party ('soft dollar benefits') in connection with client securities transactions." While I do get some research from the brokerage firm I deal with just for being on their platform, I don't think that would qualify as "soft dollars". Can you clarify?
— D.R., Georgia
The short answer is that you are correct. The question on the ADV is, as I understand it, seeking information on those extra "benefits" that a brokerage firm may provide specifically tied to the amount of transactions the adviser is executing through the platform, and not simply for having assets on the platform. However, keep in mind that there are some brokerage firms that provide additional benefits to the adviser if he or she maintains a certain amount of assets under management (as opposed to executing a certain amount of transactions). In that case, it's likely that those additional benefits could be considered "soft dollars." You should also be aware that some states may read the question more broadly and require you to provide a "yes" answer to the question, even in those situation where the research isn't really "soft dollars."
My RIA client agreements have a paragraph that says the agreement will continue after the death of the client unless the executor of the estate terminates the agreement. The brokerage firm that I execute the trades through, however, has told me that it's against FINRA regulations to trade in the account until the executor is appointed by the probate court and that the account is basically frozen. Is the firm right?
— K.C., Florida
For the most part, the brokerage firm is correct. While there is no specific FINRA rule that specifically references trading in the account of a deceased client, FINRA Rule 2510 says that "No member or registered representative shall exercise any discretionary power in a customer's account unless such customer has given prior written authorization to a stated individual...."
While your client agreement may arguably provide such authorization, it's doubtful that the brokerage firm's client agreement would contain a similar provision. However, even more fundamental is the legal principle that would hold such authorization to be terminated upon the death of the party who granted it. Think of it this way: Until a personal representative (or executor) is appointed by the probate court, the client no longer has the ability to ratify the trades or revoke the authority granted. Therefore, the law will presume such authority to cease upon the client's death. Of course, once the probate court appoints the executor or personal representative of the estate that individual can effectively ratify the contract and allow you to continue trading. The brokerage firm may want the executor to sign a new client agreement and would likely re-title the account. But until an executor is appointed, the account should remain essentially frozen.
Alan J. Foxman is an attorney in private practice in Boca Raton, Fla.
He also works as an independent contractor with National Compliance Services
Inc. in Delray Beach, Fla. He can be contacted at this email address.