Can third-party payments benefit the principal?

Impacts of Conflicts of Interest in the Financial Services Industry

“…The author also finds mutual fund providers shift part of their research expenses through soft dollars, without reducing explicit fees. Horan and Johnsen (2008) find premium commissions are positively related to riskadjusted performance, suggesting this soft dollar arrangement isn't necessarily unjust enrichment at the expense of the investor.…”

“…Horan and Johnsen (2008) find that soft dollar arrangements may not necessarily be detrimental.35 This section presents survey and experimental evidence not discussed elsewhere in our review. The next section discusses experimental evidence suggesting that disclosure may not mitigate conflicts of interest but may, in fact, exacerbate them.…”

Does Transparency Overcome Conflicts of Interest? Evidence from Investment Managers and Their Brokers

“…On the other hand, Livne and Trueman (2002) and Horan and Johnsen (2008) produce entirely antithetical conclusions. In the Livne and Trueman (2002) model, managers receiving softed services are better informed, which allows them to trade more "aggressively" and thus generate superior returns for their investors.…”

“…Bundled services thus result in a better fund performance for the investor, which the authors show would be compromised by mandating disclosure of how commissions were spent. For Horan and Johnsen (2008), there is an often overlooked benefit in soft dollar arrangements. Because soft dollar credits for a given period are provided by the broker up-front (i.e.…”

Retail Securities Regulation in the Aftermath of the Bubble

“…For example, asset managers can use their power to vote shareholder proxies as leverage 47. While most discussions of soft dollars fi nd this problematic (e.g., Siggelkow 2004), Horan and Johnsen (2008) argue that the ability of managers to pass on the costs of research in a lessthan-transparent manner is benefi cial, in that it offsets what would otherwise be an incentive to underinvest in research. in obtaining underwriting or other business (Davis and Kim 2007).…”