SEC Division of Investment Management staff letter: BNY ConvergEx Group

Investment Advisers Act of 1940 – Section 206(3) Securities Exchange Act of 1934 – Section 28(e) BNY ConvergEx Group, LLC September 21, 2010 Our Ref. No. 2010414127 RESPONSE OF THE OFFICE OF CHIEF COUNSEL DIVISION OF INVESTMENT MANAGEMENT File No. 132-3 Your letter dated September 13, 2010 presents the issue of whether the provision of research services by a research firm that is also a broker-dealer registered under the Securities Exchange Act of 1934 (“Exchange Act,” and such broker-dealer, “Research BD”) to an institutional investment manager ("Money Manager") would in and of itself establish an investment adviser/client relationship under the Investment Advisers Act of 1940 ("Advisers Act") between the Research BD and accounts managed by the Money Manager on a discretionary basis ("Managed Accounts"). Under the terms and representations detailed below, we do not believe that it would.
I. Background
Money Managers use different compensation arrangements to purchase research services from Research BDs that they use to manage the portfolios of their Managed Accounts. Some Money Managers use their own assets (“hard dollars”). Other Money Managers pay for such research services using brokerage commissions generated by the trading activities of their Managed Accounts through client commission arrangements under the safe harbor in section 28(e) of the Exchange Act.1 Client commission arrangements structured in accordance with section 28(e) may vary considerably in their