Monday, June 28, 2004

The End of Soft Dollar Arrangements?

Soft dollar arrangements, where brokerage firms provide research or research related products to institutions in exchange for an agreement by the institution to use the firm for trade execution, has been under scrunity for some time now. While perfectly legal, to some the practice is unseemly, almost a bribe to the institution to send its execution business to a particular firm.

Of course, it is no such thing, and in most arrangements, works to the benefit of the institution, and its shareholders. However, since most of those institutions are mutual funds, and mutual fund "fraud" is the hot topic these days, managers and brokers are getting a bit nervous about the practice.

And today, Fidelity Investments announced that it will no longer use soft dollar arrangements for its market data, relationships that it has had with such industry powerhouses as Bloomberg.

The move is expected to cost Fidelity $40 to $50 million a year. However, in an interesting side note, according to CBS MarketWatch, Fidelity will continue to obtain research through its soft dollar arrangements.

Now I am confused. Does Fidelity think soft dollar arrangments are good or bad for its funds and fund shareholders?

CBS Market Watch Article -
Fidelity to halt "soft dollar" payments for data
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