What is a key consideration when allocating trades in side-by-side trading policies?

When it comes to side-by-side trading policies, managing conflicts of interest related to different fee structures is a crucial consideration. In many scenarios, an investment adviser may manage multiple client accounts with varying fee arrangements, such as asset-based fees versus incentive-based fees. These differing fee structures can create incentives for the adviser to favor certain accounts over others when allocating trades, particularly if one client stands to benefit more financially from a particular trade.

To maintain ethical standards and comply with regulatory requirements, advisers must navigate these potential conflicts carefully. Effective policies should be designed to ensure fair trade allocation and transparency, preventing any perception or actual favoritism. By focusing on managing these conflicts, advisers can uphold their fiduciary duty to act in the best interest of all clients while still pursuing profitable opportunities.

Other options, while they may seem relevant, don't address the core ethical and compliance challenges presented by side-by-side trading. For instance, equal shares of profitable trades may not always be feasible or mandated by regulation. Implementing fixed fee structures might manage some aspects of conflict but does not fully address the nuances present in trading scenarios. Lastly, allowing accounts to take opposing positions may violate compliance protocols and does not inherently resolve conflict concerns, potentially leading to further complications in trade allocation.