Business Context and Objectives

A leading investment management firm needed to systematically evaluate and compensate broker-dealers for their services across research, corporate access, and execution quality. The solution needed to:

  • Create a transparent, data-driven broker evaluation process
  • Optimize commission allocation based on service value
  • Track and manage soft dollar commitments
  • Provide detailed reporting for management oversight
  • Ensure compliance with regulatory requirements

Broker Voting System Design

Voting Framework

Implemented a point-based evaluation system where:

  • Each participant received 100 points to allocate
  • Votes were collected across multiple service categories
  • Quarterly updates allowed for dynamic adjustments
  • Anecdotal evidence required for high-score justification

Evaluation Categories

  1. Research Quality
    • Published research depth and timeliness
    • Sector/industry coverage
    • Analytical framework
    • Investment thesis clarity
    • Historical accuracy
  2. Bespoke Research
    • Response time to requests
    • Analysis quality
    • Customization level
    • Follow-up support
    • Resource allocation
  3. Corporate Access
    • Management meeting arrangements
    • Conference quality
    • Site visit coordination
    • Non-deal roadshow organization
    • Expert network access
  4. Execution Services
    • Trade execution quality
    • Market color
    • Block trading capabilities
    • Algorithm performance
    • Sales trading support

Voting Process Implementation

Participant Weighting

Established weighted voting structure based on role:

  1. Portfolio Managers
    • 40% weight on research quality
    • 35% weight on corporate access
    • 25% weight on bespoke research
  2. Research Analysts
    • 25% weight on research quality
    • 30% weight on corporate access
    • 45% weight on bespoke research
  3. Traders
    • 60% weight on execution quality
    • 25% weight on market color
    • 15% weight on research/corporate access

Evidence Collection

Implemented structured feedback collection:

  • Mandatory commentary for high scores
  • Specific examples of valuable interactions
  • Documentation of corporate access events
  • Tracking of research request outcomes
  • Trade execution analysis

Commission Budget Management

Budget Establishment

Created systematic budget allocation process:

  • Analysis of historical trading volumes
  • Review of service consumption patterns
  • Consideration of strategy-specific needs
  • Alignment with soft dollar requirements
  • Quarterly budget adjustments

Commission Types

Segregated commission tracking by category:

  1. Soft Dollar/Commission Sharing Agreements - CSA’s
    • Research services
    • Corporate access
    • Market data services
    • Analysis tools
  2. Execution-Only Commissions
    • Algorithm execution
    • DMA trading
    • Program trading
    • Portfolio trading

System Implementation

Technical Architecture

  1. Data Collection Module
    • Online voting interface
    • Evidence documentation
    • Score aggregation
    • Weight application
    • Audit trail maintenance
  2. Commission Tracking
    • Real-time commission capture
    • Broker-wise accumulation
    • Strategy-level tracking
    • Type-based segregation
    • Budget versus actual monitoring

Reporting Framework

Implemented comprehensive reporting suite:

  1. Commission Analysis
    • Broker-wise breakdown
    • Strategy-level analysis
    • Trader-specific reports
    • Execution type analysis
    • Soft dollar accumulation
  2. Performance Metrics
    • Broker score trends
    • Service quality metrics
    • Budget utilization
    • Vote distribution
    • Participant engagement
  3. Management Reports
    • Executive summaries
    • Trend analysis

Operational Workflow

Semi Annual Process

  1. Vote Collection (Week 1)
    • Distribute voting forms
    • Collect service examples
    • Gather execution metrics
    • Document corporate access
  2. Analysis (Week 2)
    • Apply weightings
    • Aggregate scores
    • Review evidence
    • Validate unusual patterns
  3. Budget Adjustment (Week 3)
    • Review historical data
    • Adjust broker targets
    • Update trading systems
    • Communicate changes
  4. Implementation (Week 4)
    • Update routing tables
    • Modify commission rates
    • Adjust soft dollar tracking
    • Update reporting parameters

Results and Impact

The system achieved significant improvements:

Quantitative Benefits

  • 60% more efficient commission allocation
  • 25% reduction in commission leakage
  • 100% soft dollar tracking accuracy
  • 40% increase in valuable research engagement
  • 50% improvement in corporate access utilization

Qualitative Benefits

  • Enhanced transparency in broker evaluation
  • Improved service quality through feedback
  • Better alignment of resources with value
  • Increased accountability in voting process
  • More effective commission management

The broker voting system has become an integral part of the firm’s trading operations, providing a systematic framework for evaluating and compensating broker services while ensuring optimal commission utilization across all investment strategies.