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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
Mentioned in ?
References in periodicals archive ?
"Soft dollars" refers to the practice of paying full price for stock trade execution and receiving research for free in return.
In announcing the final settlement, Janus says it implemented several new measures, including: enhancing portfolio valuation techniques to discourage market timing; eliminating the use of 'third-party soft dollars,' or using brokerage commissions to purchase research and services; implementing a 2% redemption fee on shares of certain funds liquidated within 90 days of purchase; and, increasing portfolio holdings disclosure to monthly from semi-annually.
* Control procedures are in place to periodically review policies for best execution, soft dollars and proxy voting.
SEC is also seeking information on how fund advisers use investor dollars to obtain research under a practice called soft dollars. Given the increased spotlight that Congress and regulators are placing on the mutual fund industry, GAO believes the time is right to more effectively address the conflicts of interest created by soft-dollar arrangements.
"They're also getting better at policing this." Some have banned the use of "soft dollars," or kickbacks, in which a fund company pays a brokerage more than required to execute a trade and the brokerage responds by providing research, IPO access or information terminals.
Except there's a loophole--a Grand Canyon-like chasm, in fact--through which unregulated and unlimited soft dollars are finding their way into the political system.
"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.
Neef provides several actual corporate examples throughout the book of how a carefully planned e-procurement initiative can result in significant financial returns in both hard and soft dollars for organizations.
CRP is a process where a fund receives a rebate from a portion of the commissions known as soft dollars. Soft dollars are portions of a broker's commission that investment managers use to pay for research whether it comes in a proprietary way or arrives by third-party researchers.
* Adviser trading practices, including the use of soft dollars and the obligation to seek best execution;
Management sees that training isn't any longer about soft dollars, but hard dollars.
Soft dollars. This well-oiled system allows money managers and mutual funds to pay for research, software, and other business that benefits the client.