CHICAGO - Ennis, Knupp & Associates Inc. dropped its 16-year program allowing pension funds to pay for consulting services through soft dollars.
Richard M. Ennis, chief executive officer, said the firm "has some growing concern whether clients are getting best execution through this arrangement."
Ennis Knupp used Bear Stearns Securities Corp., New York, for the program since its inception 16 years ago, when the consulting firm was just starting in business.
"Whether soft dollars affect investment performance, this is a key issue," Mr. Ennis said. "We've seen a study more recently by the Plexus Group (Santa Monica, Calif.) that soft-dollar trades may cost more to execute than the benefit received from a lower commission," Mr. Ennis added.
"While we we're convinced we were making available to our clients best execution, we don't want to appear to be encouraging this practice."
For the firm, "it's a sensitive issue from a fiduciary standpoint. We don't want to be perceived as encouraging the use" of soft dollars.
Mr. Ennis said about 10% of his clients used the directed brokerage, accounting also for about 10% of its billings. Under it, Bear Stearns would pay Ennis Knupp rebates on commissions for clients whose managers traded through the brokerage firm. "For all those clients that use the soft dollars, it accounts for only a fraction of their fees to us," he said. No client paid its full fee through the program.
The $8 billion State Universities Retirement System of Illinois, Champaign, was in the Ennis program. It announced it dropped its brokerage commission recapture program. Both Ennis Knupp and Illinois State Universities' decisions were arrived at separately and coincidentally, officials said.
Ennis Knupp still will accept soft-dollar payments from clients for its consulting fees, but only through arrangements made by the pension funds with their brokerage firms; Ennis Knupp won't be involved in setting up the arrangements. Mr. Ennis said the firm will recommend a list of soft-dollar brokerage firms for pension funds that want to continue to use soft dollars. He declined to names the brokerages it recommends.