View source for Template:Investment research and the Investment Advisers Act 1940

{{fullanat|sea|28(e)|1934}}
===[[Investment research]] and [[Investment Advisers Act]]: a [[safe harbor]] for [[broker/dealers]]===
''Unless there is a [[safe harbor]]''<ref>Just wait!! There IS!</ref>, paying a [[broker/dealer]] for [[investment research]] creates issues under the [[Investment Advisers Act]] because the [[SEC]] considers a fee for research “advice” to be “special compensation”, for which a person must be a [[registered investment adviser]]<ref>Details fiends: see Section 202(a)(11) of the [[Investment Advisers Act]].</ref> under the [[Investment Advisers Act of 1940]].

Hey - stay with me. Stop staring out the window. This ''is'' interesting.<ref>To a [[US attorney]].</ref>

Typically, [[broker dealer]]s are ''not'' [[registered investment adviser]]s. Can be, but usually aren’t.
 
There ''is'', of course, a [[safe harbor]]. It is set out in Section {{seaprov|28(e)}} of the [[Securities Exchange Act of 1934]]: to qualify for it, a [[broker/dealer]]’s advice must be “solely incidental” to its provision of “[[broker/dealer]] services”.

Under {{tag|SEC}} guidance “[[commission]]s” may be used to purchase [[investment research|research]] on a “[[soft dollar]]” basis.  

The definition of “[[commission]]” is important: 
:''a fee that a [[broker/dealer]] levies for executing a securities transaction as [[agent]].''

===Extensions and exceptions===
*'''[[Riskless principal]]: OK''': The [[SEC]] extended the [[safe harbor]] to certain [[riskless principal]] transactions in [[exchange-listed securities]] in 2001, [[riskless principal]] really being a form of [[quasi-agency]].

*'''[[Synthetic equity swap|Swap]]: ''Not'' OK''': '''[[The safe harbor]] doesn’t apply to [[Synthetic equity swap|swap]] transactions''': By definition swaps are [[bilateral]], full-principal contracts. They cannot be [[agency]] or [[riskless principal]]<ref>You could argue this isn't true for delta-one [[synthetic prime brokerage]] arrangements but, it if you know what’s good for you, you wouldn’t.</ref>. The [[swap dealer]] takes a fee (as [[principal]]) that is no sense a “[[commission]]”.  The swap [[dealer]] does not act as [[agent]] (or [[quasi-agent]]). 

A superbly literalist, non-sensical view of the world, but there you have it. It wouldn’t be the first time, America.
====So, what does this mean then?====
This means a US [[broker-dealer]] can provide [[Investment research|research]] to its clients without having to register with the {{tag|SEC}} as an [[investment adviser]] ''so long as it doesn’t earn any “[[special compensation]]” relating to the research. A bundled trading [[commission]] is the traditional means of compensating a broker-dealer for execution and research in a way that avoids special compensation.

===Sorry you asked?===
Let me guess: You’re thinking, “{{isia}}”. I know ''I’m'' sorry you asked.

{{Sa}}
*[https://www.sec.gov/rules/interp/34-23170.pdf SEC interpretative guidance]