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.

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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.

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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.