January 29, 2007

More Cooks in the Kitchen
As if the duties of best-execution committees are not complex enough, the number of people involved with such committees may be expanding, as more parties determine that they ultimately may be held accountable for the performance of the funds. Most firms have quarterly or monthly meetings staffed by the chief investment officer, head trader, chief compliance officer and CFO, with myriad variations beyond that, according to Ian Domowitz, CEO of ITG Solutions Network. But it is now common for incoming software vendors to join meetings with the boards of directors and boards of trustees of major funds, he says.

It's also more common now to include the portfolio manager in the meetings, as firms strive to strengthen relationships within the firm as much as they try to focus, sharpen and whittle down external relationships, insiders say.

Further, the commission-management software that would seem to fall only in the camp of oversight committees also gets passed down to the client services staff, observes Financial Sockets' Hunt. After all, she continues, they have to explain the managers' decisions to clients.

Despite the availability of tools to help quantify best execution, the majority of oversight committees still base their broker-retention decisions on a widely interpretive mix of raw data and gut feelings, using factors that are not particularly easy to feed into a program and get a definitive answer back, according to many traders.

And while many firms are cutting down the number of brokers with which they work, best-execution committees must consider the big picture rather than just individual trades when determining the value delivered by brokers.

"Having strong relationships with full-service brokers is valuable," Franklin Templeton's Stephenson says. "We want to get the first call on liquidity and remain a valued customer. ... That also comes under review - we look at what we need to do to try to improve relationships, too. The key is trying to maximize all our resources while providing the guidance necessary to allow our brokers to efficiently provide the services we value."

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