Soft Dollar

Soft Dollar

Soft dollars is a term used in finance to describe the commission generated from a trade or other financial transaction between a client and an investment manager. A soft dollar arrangement is one in which the investment manager directs the commission generated by the transaction towards a third party or in-house party in exchange for services that are for the benefit of the client but are not client directed. Soft dollars, in contrast to hard dollars (actual cash), which have to be reported, are incorporated into brokerage fees and paid expenses, which may not be reported directly. Registered Investment Companies generally comply with the limitations detailed in Section 28(e) of the Securities Exchange Act of 1934 but hedge funds, which are generally not registered, are not subject to the limitations of Section 28(e) and thus the client commissions are not necessarily used for the direct benefit of the client.