The SIA Soft Dollars and Institutional Brokerage Conference took aim at a wide range of issues related to soft-dollar payments in the brokerage industry, but most of the conference's attendees were there to find out one thing: Can the practice be saved?
According to Greenwich Associates, mutual funds and investment managers cut their use of indirect brokerage payments by 18 percent in 2003, and that trend is expected to continue. That's very bad news for brokerage firms—particularly smaller ones who have come to rely on the "soft" payments. A large number of these types were in attendance at the SIA show, which was held in New York City.
"I'm shocked by how many people are here," said keynote speaker Paul Atkins, commissioner at the SEC. "I guess soft dollars get people more excited than they used to."
The small-firm leanings of the crowd were frequently in evidence. During an "Equal Time" session, in which panelists Bruce Johnsen (professor of law at George Mason and a pro-soft dollars advocate) and Benn Steil (senior fellow and director of the Council of Foreign Relations and an anti-soft dollars booster) debated the merits and deficits of the practice, Steil's detrimental comments elicited frequent groans, muted boos and a flurry of questions.
Many of the sessions were full of horror stories—stories that some in the audience had encountered firsthand.
"It's like watching your business melt away. I'm dead if they cut [soft dollars]," said one head of a small firm, whose research arm depends heavily on the indirect support.
Atkins remained fairly neutral on the topic at hand.
"I've seen soft dollars used for some pretty absurd things," he said. "But we cannot legislate morality. There is only so much we can do but educate investors. Most investors don’t care about soft dollars until they understand the issues and ramifications."
He continued, "On the other hand, many of your smaller firms may feel that soft dollars provide many benefits and give them the opportunity to remain competitive. There’s a lot for us to sort out."
Atkins, who as an SEC commissioner has more than a little say in the future of soft dollars, received a warm reception—particularly after he shocked many by departing from the usual SEC script.
Prefacing his lunchtime remarks with a reminder that "the views I express are mine, not necessarily those of the SEC," he blasted this week's SEC decision to overhaul mutual fund boards. By a narrow margin, the SEC voted to require mutual fund boards to be run by an "independent chairman" and for boards to consist of 75 percent independent directors. Atkins was a dissenter.
"I do not subscribe to the view that we have to 'do something,' lest we be accused of doing nothing," Atkins said. "There is no empirical evidence that this will make a difference. I am concerned we're merely digging for fool's gold."