Soft dollars

Soft dollars

The value of research services that brokerage houses supply to investment managers "free of charge" in exchange for the investment manager's business commissions.

soft dollars

Payment for brokerage firm services that is provided by commissions generated from trades. Thus, an investor who does significant trading might be provided with "complimentary" subscriptions to market letters or an at-home quote system. Payment is disguised in the form of large commissions paid to the brokerage firm. Compare hard dollars.

Soft dollars.

Soft dollars are amounts that money managers, including mutual fund managers, pay out of their clients' accounts to a brokerage firm to cover the cost of research the firm provides. Soft dollars also cover transaction fees for executing trades.

The alternative would be for the managers to purchase the research with their own money, or hard dollars, and pay for the transaction fees with their clients' money.

Using soft dollars isn't a violation of the manager's fiduciary duty, provided that the money pays for research that is consistent with SEC requirements and for actual transaction costs. In fact, it may make valuable research information available to both the managers and their clients.

The practice is controversial, however, for a number of reasons, including whether soft dollar relationships conflict with the managers' obligation to seek best execution of the trades they place.

Mentioned in ?
References in periodicals archive ?
As a result, commission sharing arrangements (CSAs) and client commission arrangements (CCAs) - both easy ways to implement soft dollars - have become popular among investment managers in the last two years and will continue to be aggressively adopted.
Commission payments generating soft dollars currently are permissible within limits under section 28(e) of the Securities and Exchange Act of 1934.
Control procedures are in place to periodically review policies for best execution, soft dollars and proxy voting.
Our June 2003 report, Mutual Funds: Greater Transparency Needed in Disclosures to Investors, GAO-03- 763, reviewed (1) how mutual funds disclose their fees and related trading costs and options for improving these disclosures, (2) changes in how mutual funds pay for the sale of fund shares and how the changes in these practices are affecting investors, and (3) the benefits of and the concerns over mutual funds' use of soft dollars.
Is the client monitoring the soft dollars, best execution, and proxy voting (if it is delegated) of each one of its money managers?
In the eyes of those making the budget cuts, customer care may seem like soft dollars when, in fact, it dramatically impacts the bottom line.
Soft dollars represented 46 percent of their fund-raising total.
Adviser trading practices, including the use of soft dollars and the obligation to seek best execution;
Through directed brokerage, soft dollars now are employed to purchase a range of services and/or equipment, all with the blessing of the SEC under Rule 28(e).
Rather than dissipating investor's wealth, soft dollars subsidize portfolio research by brokers, guarantee execution quality, and promote specialization.
Broker-dealers that collect soft dollars and make payments for their hedge fund clients must possess and implement adequate procedures that govern their soft dollar practices," said Susan Merrill, FINRA Executive Vice President and Chief of Enforcement.
And we also raise a lot more hard dollars than soft dollars.