Smaller broker-dealers are less than thrilled with the ICI's asking for a ban on spending soft dollars for third-party research. The firms believe that the ban would ultimately increase the commissions paid by investors. The ICI proposed the rule changes as part of a package of industry reforms on Monday.

The Alliance in Support of Independent Research came out against the proposal on Tuesday. Lee Pickard, counsel to the Alliance and managing partner of Pickard and Djinis LLP said that the ICI's proposal would cripple the independent research industry if the ban were to be adopted.

He worries that the ban would force small money managers to either raise advisory fees or limit their use of investment research. In either case, investors suffer, said Pickard. Larger firms with more customers over which to spread the cost of buying research would not face the same problem.

He also argues that the ban would impair the ability of small money managers and their investment funds to compete with their larger peers and limit the ability of small broker-dealers to compete with large Wall Street firms.

One potential problem with the ban is that it would create incentives for asset managers to use brokerage firms that bundle execution alongside other proprietary services. Smaller firms would be at a disadvantage since they would have to create an internal research staff. Today, those brokers can compete with larger firms by buying the research of independent research providers.

Pickard headed market regulation at the SEC at the time the safe harbor rule allowing the research sales was instituted.  

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