From Guidance to Form 5500


New York – Yesterday, the Investorside Research Association sponsored a conference call to discuss vagaries of 28(e), the differences between CCAs and CSAs, and the DOL’s Form 5500. The speaker was Will Edick or Pickard & Djinis and the call was open to all Investorside members. The initial discussion centered on the SEC’s interpretive guidance of the summer of 2006 and other factors affecting alternative research providers. The following is a synopsis of the discussion on a number of topics.

Reporters and others have been using Client Commission Arrangements (CCAs) and Commission Sharing Agreements (CSAs) relatively interchangeably. It is true that they share some commonality, but the key difference, according to Mr. Edick, is that CSAs are arrangements between brokers to share commissions, while CCAs allow for non-brokers to get paid for providing services to asset managers. Once the broker has created the pool, it morphs into something other than commissions in the eyes of the SEC. Therefore, the alternative research provider that is not a B/D can get paid for research via a CCA.  From this pool the money manager can request the broker to make payments to the research providers, as long as specific dollar amounts are cited.

Mr. Edick indicated that the Guidance gave a measure of comfort to market participants, since it answered many of the open questions about soft dollar usage under the safe haven provision. However, what the SEC did not deal with in the guidance was the issue of disclosure and transparency, originally deferring this to the end of 2007. The new deadline is currently Q1 2008, but Mr. Edick expects that this deadline may slip by as well.  What has been decided is that the guidance will be offered to Mutual Fund Boards and will detail what parameters or criteria they should ask their money managers. One issue here is the treatment of proprietary research versus alternative research. Brokers assert that it is impossible to value proprietary research, while alternative (non-B/D) research firms must put a value on their research to paid from the pool.  

In light of this, Pat Shea, Executive Director of Investorside Research Association, asked about the tax implications of the payments to third party research providers. Mr. Edick indicated that he was not a tax lawyer, but that he was aware that these payments might be susceptible to certain state usage taxes. 

DOL Form 5500 is a form that is filed by pension funds with the DOL. The strictures of this form were revised in December 2007 and set forth the type of information that the plan needs to ask of the money manager in terms of disclosures. Schedule C of the Form delineates “Service Provider Information” which includes the value of research received. Only those research providers that are paid in excess of $5,000 need to be disclosed.

 If, however, the fund receives enough information from the money manager, it need not make public this information via Form 5500. What constitutes enough, according to Mr. Edick, is written disclosure of payment s made, including statements of services provided to the money manager by each of its brokers;  the type of research, the value of the research provided—either dollar amount or the allocation formula used—and the identity of the research provider.

Again, this would disadvantage the alternative research providers compared to the proprietary research providers in that there pricing information could be made public. Given that the goal of the SEC not to disadvantage the alternative research providers, some amendments to the disclosure guidelines are possible.

Note: You may access a recording of the conference call: “Investorside Regulatory Update” at:

Phone Number:   641 715 3508

Pin Number         100 8594 #

For more information on Form 5500 and its reporting requirements, refer to the December 4th blog. You can search for it using “DOL”.


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