ADVISORIES: Commission Recapture Programs Flashcards
A pension plan should first determine whether a commission recapture program will actually produce lower costs overall.
What should a pension plan determine about commission recapture programs?
Whether it will actually produce lower costs overall.
What is the purpose of commission recapture programs for pension plans?
To recover a portion of their brokerage costs, which can be used to defray plan administration expenses.
What are commission recapture revenues typically used for in pension plans?
To reduce overall administrative expense.
What is an alternative to the recapture of commissions?
Negotiating a lower transaction fee directly with participating brokerage firms, focused on execution-only services.
What should be established for commission recapture and maintained within the pension plan’s procedural manual?
A policy document that includes information on how the program would operate.
What should be defined by the pension plan’s policy document for choosing recapture programs?
The parties that would qualify to participate, normally only for investments within separate accounts.
What should all agreements with brokers in commission recapture programs include?
Precise definitions of all services to be provided and the rights of the parties executing the trades.
What are the criteria for selecting the best-qualified firms for commission recapture programs?
The firm’s historic ability to achieve best execution, volume of trades, experience with institutional clients, and participation in other recapture programs.
What type of reporting should investment managers and brokers provide to the pension plan?
Comprehensive quarterly reports, reconciled to the plan’s custodial reports.
What should the pension plan do to ensure net costs of transactions and services are as low as possible?
Conduct a regular formal review of brokerage costs and arrangements, subject to best execution.
