Soft Dollars

AAA

DEFINITION of 'Soft Dollars'

A means of paying brokerage firms for their services through commission revenue, as opposed to through normal direct payments (hard dollar fees).

The investing public tends to have a negative perception of soft dollar arrangements because they believe that buy-side firms should pay expenses out of their profits, rather than from investors' pockets. As such, the use of hard dollar compensation is becoming more common.

INVESTOPEDIA EXPLAINS 'Soft Dollars'

For example, a mutual fund may offer to pay for research from a brokerage firm by executing trades at the brokerage.

Let's say that Large-Cap Value Fund (LCV) wants to buy some research from XYZ Brokerage Firm. LCV may agree to spend at least $10,000 in commissions for brokerage services in return for research from XYZ. This would represent a soft dollar payment. Alternatively, if LCV wanted to simply buy the research from XYZ and not agree to any kind of soft dollar fee, it might have to pay the brokerage firm $7,000 in "hard dollars" (cash) for the service.

RELATED TERMS
  1. Commission

    A service charge assessed by a broker or investment advisor in ...
  2. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  3. Quid Pro Quo

    A Latin phrase meaning "something for something". This term is ...
  4. Broker

    1. An individual or firm that charges a fee or commission for ...
  5. Value Fund

    A stock mutual fund that primarily holds stocks that are deemed ...
  6. Hard Dollars

    Cash fees or payments made by an investor or customer to a brokerage ...
Related Articles
  1. Bonds & Fixed Income

    Wrap Accounts: A Gift Of Advice?

  2. Investing

    What are soft dollars?

  3. Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

  4. Mutual Funds & ETFs

    What does a mutual fund's beta coefficient ...

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center