Series 99: 3.3.2.3.1 Soft-Dollar Arrangements

3.3.2.3.1  Soft-Dollar Arrangements

Investment companies and investment advisers often find it advantageous to contract with broker-dealers for research and brokerage services on behalf of their managed accounts. These services are not paid for directly by the portfolio manager but by commission on the customer’s account. Such payments are referred to as soft dollars, and they are regulated by Section 28(e) of the Exchange Act.

For example, an investment adviser may agree to direct a fixed portion of the company’s trades to a specific brokerage firm in exchange for access to that firm’s market expertise, including databases, software programs that analyze and monitor the market, and brokerage reports. The broker credits the money manager with money for the research out of the money it has agreed to accept for the brokerage fees. The investment company acquires access to a wider variety of market