Soft commission

Soft commission

Soft commission is commission given in a non-cash form.

Many investment funds prefer to buy things using soft dollars so they can avoid reporting direct expenses to investors who are highly cost sensitive. Thus, soft commission allow institutional funds to use trading commissions to finance their expenses and thereby report lower expense ratios.

However, soft commission frequently raises problems because it is not transparent. Soft commission is often exchanged for better service such as research for counterparty. Cost of research is very difficulty to quantify. Furthermore, soft commission is counted as cost of broking rather than management fee, which makes the management fees look lower than the actual cost to investors.


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