Soft Commissions


DEFINITION of 'Soft Commissions'

Any type of commission that is not paid in actual dollars. Soft commissions allow investment companies and institutional funds to cover some of their expenses through trading commissions. For example, receiving research from a counterparty in exchange for using their brokerage services. Thus the expense would be classified as trading commissions and at the same time would lower their reported expenses on research in this instance.

BREAKING DOWN 'Soft Commissions'

There are a large number of investment funds that usually buy things in soft dollars, because it allows the fund to avoid reporting expenses to cost-sensitive investors. Soft commissions thereby allow funds to finance their expenses and ultimately lower their expense ratios. But this type of reporting has frequently resulted in reporting problems for fund companies for various reasons.

  1. Address Commission

    The fee paid by vessel owners to charterers, the party who owns ...
  2. Commission Broker

    Someone who gets paid by the brokerage company for which he works ...
  3. Omnibus Account

    An account between two futures merchants (brokers). It involves ...
  4. Trilateral Commission

    From the site at The Trilateral Commission is ...
  5. Futures

    A financial contract obligating the buyer to purchase an asset ...
  6. Broker

    1. An individual or firm that charges a fee or commission for ...
Related Articles
  1. Insurance

    What You Need To Know About Financial Analysts

    Thinking about relying on analyst recommendations for your next trade? We'll show you what to watch out for.
  2. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  3. Professionals

    How To Target Ideal Customers

    Expand your definition of a lucrative client and uncover a new realm of possibilities.
  4. Mutual Funds & ETFs

    Benchmark Your Returns With Indexes

    If your portfolio is always falling short, you may not be making an apples-to-apples comparison.
  5. Active Trading Fundamentals

    The Basics Of Trading A Stock

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
  6. Home & Auto

    Do You Need A Real Estate Agent?

    There's no guarantee that realtors will act in your best interest, but it may be worth hiring one anyway.
  7. Brokers

    Is Your Broker Acting In Your Best Interest?

    Learn the clues you'll need to determine whether you've chosen a reputable professional.
  8. Active Trading

    Data Mining For Investors

    Being an informed investor is extremely important, but where and how do you get the data for your research?
  9. Bonds & Fixed Income

    An Overview Of Corporate Bankruptcy

    If a company files for bankruptcy, stockholders have the most to lose. Find out why.
  10. Options & Futures

    Can Insiders Help You Make Better Trades?

    Find out why the trading activity of owners and executives can be a valuable trade-confirmation tool.
  1. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
  2. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  3. When are mutual funds considered a bad investment?

    Mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high ... Read Full Answer >>
  4. What fees do financial advisors charge?

    Financial advisors who operate as fee-only planners charge a percentage, usually 1 to 2%, of a client's net assets. For a ... Read Full Answer >>
  5. Why do mutual fund companies charge management fees?

    Mutual funds charge management fees to cover their operating costs, such as the cost of hiring and retaining investment advisors ... Read Full Answer >>
  6. How do financial advisors charge fees?

    The ways in which financial advisors can claim a piece of the pie may leave your head spinning. Financial advisors can charge ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ready for pickup at his or her own place of business. All ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. LOIs are usually not legally binding in their entirety. ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing ...
  4. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  5. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  6. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!