Money managers aren't using traditional broker-dealers as much as they once did for trading and research, but their rating system is getting more detailed in order to provide a clearer picture of the value their brokers provide in a low-return, tight regulatory environment.
In addition, managers' pension fund and mutual fund clients are asking for a better breakdown of where their commission dollars are going and what value are they getting from those commissions.
"We're getting … plan sponsors becoming more sophisticated as to the use of commissions and other issues that have been primarily trading-related," said David L. Brooks, senior vice president and director of global equity trading at Boston Co. Asset Management LLC, Boston. "Commissions are the asset of the (pension) plan, so they have every right to ask us for justification and attribution of where their commissions are going."
To answer these questions, managers are increasingly turning to broker voting systems, which allow portfolio managers, analysts and traders to "vote" for the brokers that provide them with the most value. For example, a portfolio manager would have a number of votes, say 50 or 100, to allocate among the brokers he or she deals with, giving the greatest number to those brokers that provide the greatest value.
Business is booming for Cogent Consulting LLC, Summit, N.J., one of the few companies developing a broker voting system. The firm's revenues in the first quarter equaled its revenues for all of 2004, and the second quarter is on track to equal the first, according to Robin Hodgkins, president.