The age of consumerism has passed over the financial services industry. This means average investors who buy mutual funds, insurance policies, annuities and other types […]
The historical background behind ‘soft dollar’ compensation on Wall Street is that Wall Street firms often provide a great deal of research and data to their clients and that some of the cost of this can and should be made-up in commissions charged to clients on trades. The euphemism ‘soft dollars’ connotes that these dollars are marginal and not ‘hard’ or painful to the client in the context of the larger relationship.
Over the years, however, the notion of soft dollar compensation practices has been applied beyond the mere providing of research. Today, the SEC defines ‘soft dollar’ practices extremely broadly as arrangements under which products or services other than execution of securities transactions are obtained by a financial advisor from or through a broker-dealer in exchange for the direction by the advisor of client brokerage transactions to the broker-dealer. […]