IACCP EXAMINATION TEST 2025/2026 QUESTIONS WITH
ANSWERS RATED A+
✔✔Define Soft Dollars - ✔✔Arrangements where products/services (other than
execution of securities transactions) obtained by adviser from/through BD in exchange
for advisers directing trades to BD
✔✔Types of Soft Dollar Arrangements - ✔✔Proprietary research, Third party research
(investment adviser, broker, research provider), Commission sharing arrangements
(recapture programs)
✔✔Explain how the Safe Harbor Rule applies to Soft Dollars - ✔✔Allows use of client
commissions to purchase eligible brokerage and research services
✔✔What is the "Three-Step-Test? (soft dollar test) - ✔✔1) SAFE HARBOR ELIGIBLE:
Does product/service meet eligibility criteria of Safe Harbor Rule?
2) LAWFUL & APPROPRIATE INVESTMENT DECISION-MAKING
RESPONSIBILITIES ASSISTANCE: Does it provide lawful and appropriate assistance
in performance of adviser's investment decision-making?
3) GOOD FAITH DETERMINATION: Can adviser make good faith determination that
commissions paid reasonable in relation to value of products/services provided by BD
(either in terms of particular transaction or advisers overall jop w/ respect to
discretionary accounts)?
✔✔What guidance has SEC released specific to Safe Harbor Rule and Soft Dollars? -
✔✔Products/Services provide lawful and appropriate assistance to money manager in
performance of investment decision-making responsibilities;
Mixed-use:
Three-Step Test
Only when services obtained in relation to commissions paid to BD acting in agency
capacity, commissions on fixed-income securities effected on agency basis
✔✔Define Mixed-Use (soft dollars) and the applicable requirements -
✔✔Product/service obtained with client commissions has both eligible and non-eligible
uses
Requirements:
1) reasonable allocation of cost according to use;
2) maintain allocation B&R; and
3) clearly disclose soft dollar practices and provide details info to clients upon request
,✔✔Define "brokerage and research services" - ✔✔Advice, Analysis, Reports, and
Services provided by BD before communication of transaction order. [RESEARCH]
(EXs: data services, market research products/services, securities portfolio analysis
software, seminars/conferences, discussions with research analysts, meetings with
corporate execs to obtain oral reports on co's performance, rating services)
(newer 'Temporal' Standard): activities required to effect transaction (beginning order
transmittal to BD through conclusion of transaction clearance and settlement); also
functions incidental thereto ('Incidental'); and functions required by SEC or SRO rules.
[BROKERAGE]
(Exs Temporal: communications services related to execution, clearing, settlement of
securities; dedicated lines between BD and adviser's/third-party vendor's order
management system; order transmittal services; trading software; software providing
algorithmic trading strategies
EXs Incidental: clearance, settlement & short-term custody services in connection w/
trades effected by broker; post-trade matching of trade info; electronic communication of
allocation instructions between institutions and BDs
✔✔Define "Directed Brokerage" and requirements - ✔✔CLIENT-REQUESTED: adviser
instructed to direct all or portion of brokerage transactions to specified BD
ADVISER-REQUIRED Adviser does not take discretion to determine broker or
commission on trade-by-trade basis and requires all clients direct use of specific BD for
all trades
Requirements include:
1) reasonably disclose to client disadvantages of arrangement and any conflicts of
interest;
2) written policies and procedures;
✔✔What are the disadvantages or limitations of a Directed Brokerage arrangement? -
✔✔Inability to negotiate commissions, to obtain volume discount, and potential conflicts
of interest such as referral of clients from brokerage firm
✔✔Directed Brokerage vs Soft Dollars - ✔✔SOFT DOLLARS: arrangement for
product/service from or through BD in exchange for adviser directing trades to BD
DIRECTED BROKERAGE: client request or adviser requirement to direct all or some
portion of trades to a specific BD
✔✔Factors to consider when seeking best execution, including price and non-price
considerations - ✔✔Advisers should place orders with intent of maximizing value or
minimizing cost to clients in light of relevant circumstances.
, Factors may include: value of research provided, execution capability, brokerage
personnel responsiveness, explicit costs (brokerage commissions, fees), implicit costs
(bid/ask spreads, etc.), anonymity of parties, financial responsibility, willingness to
commit capital to facilitate trade
✔✔Advisers responsibility for selecting broker - ✔✔1) P&P: written policies procedures
to reasonably prevent violations of federal securities laws;
2) attempt to define optimal outcome for clients over time;
3) periodically and systematically evaluate quality and cost of services from BD;
4) consider quality/cost of services available from alternative brokers and providers
✔✔Define adviser's best execution duty/obligation - ✔✔Duty to seek best execution on
behalf of client by considering a variety of factors so that securities transactions are
executed in such a manner that the client's total cost or proceeds in each transaction is
the most favorable under the circumstances
✔✔What is an adviser's duty as related to best execution obligation and soft dollars? -
✔✔While testing BD's best execution review soft dollars to determine expenses are
justified and reasonable
✔✔Directed Brokerage disclosure (Mark Bailey & Co. SEC Release) - ✔✔1) Advisers
inability to negotiate commissions;
2) inability to obtain volume discounts;
3) disparity in commission charges among clients; 4) potential conflicts of interest
(referrals from brokerage firms)
✔✔What does the Safe Harbor Rule require as applicable to commission sharing
arrangements? - ✔✔BD providing research must also be involved in effecting the trade
✔✔What guidance was provided by SEC regarding client commission practices under
Safe Harbor Rule? - ✔✔Functions correcting a trade error are NOT eligible "brokerage
services" under the Safe Harbor Rule
✔✔Define Insider Trading - ✔✔Trading on basis of material nonpublic information
✔✔Primary Elements of Insider Trading (scope) - ✔✔MNVAW
Materiality
Nonpublic
Violation of duty & trust
Actions or trading
Wrongful intent ("scienter" - knowing or reckless - not just negligence)
ANSWERS RATED A+
✔✔Define Soft Dollars - ✔✔Arrangements where products/services (other than
execution of securities transactions) obtained by adviser from/through BD in exchange
for advisers directing trades to BD
✔✔Types of Soft Dollar Arrangements - ✔✔Proprietary research, Third party research
(investment adviser, broker, research provider), Commission sharing arrangements
(recapture programs)
✔✔Explain how the Safe Harbor Rule applies to Soft Dollars - ✔✔Allows use of client
commissions to purchase eligible brokerage and research services
✔✔What is the "Three-Step-Test? (soft dollar test) - ✔✔1) SAFE HARBOR ELIGIBLE:
Does product/service meet eligibility criteria of Safe Harbor Rule?
2) LAWFUL & APPROPRIATE INVESTMENT DECISION-MAKING
RESPONSIBILITIES ASSISTANCE: Does it provide lawful and appropriate assistance
in performance of adviser's investment decision-making?
3) GOOD FAITH DETERMINATION: Can adviser make good faith determination that
commissions paid reasonable in relation to value of products/services provided by BD
(either in terms of particular transaction or advisers overall jop w/ respect to
discretionary accounts)?
✔✔What guidance has SEC released specific to Safe Harbor Rule and Soft Dollars? -
✔✔Products/Services provide lawful and appropriate assistance to money manager in
performance of investment decision-making responsibilities;
Mixed-use:
Three-Step Test
Only when services obtained in relation to commissions paid to BD acting in agency
capacity, commissions on fixed-income securities effected on agency basis
✔✔Define Mixed-Use (soft dollars) and the applicable requirements -
✔✔Product/service obtained with client commissions has both eligible and non-eligible
uses
Requirements:
1) reasonable allocation of cost according to use;
2) maintain allocation B&R; and
3) clearly disclose soft dollar practices and provide details info to clients upon request
,✔✔Define "brokerage and research services" - ✔✔Advice, Analysis, Reports, and
Services provided by BD before communication of transaction order. [RESEARCH]
(EXs: data services, market research products/services, securities portfolio analysis
software, seminars/conferences, discussions with research analysts, meetings with
corporate execs to obtain oral reports on co's performance, rating services)
(newer 'Temporal' Standard): activities required to effect transaction (beginning order
transmittal to BD through conclusion of transaction clearance and settlement); also
functions incidental thereto ('Incidental'); and functions required by SEC or SRO rules.
[BROKERAGE]
(Exs Temporal: communications services related to execution, clearing, settlement of
securities; dedicated lines between BD and adviser's/third-party vendor's order
management system; order transmittal services; trading software; software providing
algorithmic trading strategies
EXs Incidental: clearance, settlement & short-term custody services in connection w/
trades effected by broker; post-trade matching of trade info; electronic communication of
allocation instructions between institutions and BDs
✔✔Define "Directed Brokerage" and requirements - ✔✔CLIENT-REQUESTED: adviser
instructed to direct all or portion of brokerage transactions to specified BD
ADVISER-REQUIRED Adviser does not take discretion to determine broker or
commission on trade-by-trade basis and requires all clients direct use of specific BD for
all trades
Requirements include:
1) reasonably disclose to client disadvantages of arrangement and any conflicts of
interest;
2) written policies and procedures;
✔✔What are the disadvantages or limitations of a Directed Brokerage arrangement? -
✔✔Inability to negotiate commissions, to obtain volume discount, and potential conflicts
of interest such as referral of clients from brokerage firm
✔✔Directed Brokerage vs Soft Dollars - ✔✔SOFT DOLLARS: arrangement for
product/service from or through BD in exchange for adviser directing trades to BD
DIRECTED BROKERAGE: client request or adviser requirement to direct all or some
portion of trades to a specific BD
✔✔Factors to consider when seeking best execution, including price and non-price
considerations - ✔✔Advisers should place orders with intent of maximizing value or
minimizing cost to clients in light of relevant circumstances.
, Factors may include: value of research provided, execution capability, brokerage
personnel responsiveness, explicit costs (brokerage commissions, fees), implicit costs
(bid/ask spreads, etc.), anonymity of parties, financial responsibility, willingness to
commit capital to facilitate trade
✔✔Advisers responsibility for selecting broker - ✔✔1) P&P: written policies procedures
to reasonably prevent violations of federal securities laws;
2) attempt to define optimal outcome for clients over time;
3) periodically and systematically evaluate quality and cost of services from BD;
4) consider quality/cost of services available from alternative brokers and providers
✔✔Define adviser's best execution duty/obligation - ✔✔Duty to seek best execution on
behalf of client by considering a variety of factors so that securities transactions are
executed in such a manner that the client's total cost or proceeds in each transaction is
the most favorable under the circumstances
✔✔What is an adviser's duty as related to best execution obligation and soft dollars? -
✔✔While testing BD's best execution review soft dollars to determine expenses are
justified and reasonable
✔✔Directed Brokerage disclosure (Mark Bailey & Co. SEC Release) - ✔✔1) Advisers
inability to negotiate commissions;
2) inability to obtain volume discounts;
3) disparity in commission charges among clients; 4) potential conflicts of interest
(referrals from brokerage firms)
✔✔What does the Safe Harbor Rule require as applicable to commission sharing
arrangements? - ✔✔BD providing research must also be involved in effecting the trade
✔✔What guidance was provided by SEC regarding client commission practices under
Safe Harbor Rule? - ✔✔Functions correcting a trade error are NOT eligible "brokerage
services" under the Safe Harbor Rule
✔✔Define Insider Trading - ✔✔Trading on basis of material nonpublic information
✔✔Primary Elements of Insider Trading (scope) - ✔✔MNVAW
Materiality
Nonpublic
Violation of duty & trust
Actions or trading
Wrongful intent ("scienter" - knowing or reckless - not just negligence)
