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News May 9, 2005 Issue

NASD Official: Unbundling Easier Said Than Done

Sure, it’s easy to write policy statements urging the unbundling of soft dollars. But without an established calculation methodology, any unbundled disclosure will be meaningless.

In a recent speech before the Independent Directors Council, NASD executive vice president for regulatory policy and programs Elisse Walter briefly touched on the fact that the NASD Mutual Fund Task Force differed from the IDC and also the U.K. Financial Services Authority on the issue of whether full service commissions should be unbundled.

Most of the Task Force members, she said, believed that there is no meaningful way for brokers or advisers to provide good faith estimates of the breakdown of total commissions into research and execution components. In contrast, the IDC and FSA have encouraged unbundling. Walter noted that the FSA has been working with several U.K. trade groups to develop a disclosure regime.

Walter seemed to think that the numbers provided to clients wouldn’t hold water.

"While these [U.K. groups] have developed policy statements that call for investment managers to disclose unbundled commissions to their clients, and encourage brokers and managers to develop an appropriate split between research and execution, they have not grappled with the Task Force’s concern about the value of this information in the absence of consistent valuation techniques," she said. "Unless we can agree upon some definite standards for calculating unbundling, we run the risk that fairly arbitrary and meaningless estimates will be provided to clients."

Earlier this spring, an SEC official indicated that the agency was not inclined to require unbundling.