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News January 29, 2007 Issue

Mixed-Use Soft Dollar Products Can Involve Double Allocations

Mixed-use products, such as proxy voting services or performance management software, can raise tricky questions about legitimate usage. But what if the mixed-use product in question is made up of both eligible and ineligible components?

In that case, noted Pickard and Djinis partner Mari-Anne Pisarri, "you really have two allocation situations."

Speaking at last weeks ALI-ABA investment adviser conference, Pisarri gave the following example:

Say a soft dollar product worth $100 contains both hardware (which is not 28(e)-eligible) and research (which is). Say the research is worth $75 and the hardware is worth $25. The use of the product is 50 percent administrative, 50 percent research.

How much can the adviser soft?

"The soft dollarable portion of that $100 is not $50," said Pisarri. "You cant just say I use it half-and-half so Im going to cut the price in half, because $25 of that product is related to ineligible features." Instead, Pisarri explained, "before you do the mixed-use [allocation], you have to take out the ineligible features, leaving $75, and then half of that is lawful and appropriate assistance." The amount that can be softed, she said, "is $37.50."

Pisarri acknowledged that that is "somewhat of a subtle point." And, she noted, it may be difficult to determine the cost attributable to the ineligible component of soft dollar product.