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Soft Dollar Addiction

I have discussed the Financial Services Industry’s addiction to “soft dollar” fees before. This idea is nothing new but what is interesting is the fact that a large brokerage house is in the news for attempting to add these fees to the exchange-traded fund (ETF) market.

Morgan Stanley (which has been fighting the Department of Labor over the new Fiduciary Standard set to be implemented in April), is looking to force “soft dollar” fees on ETF’s it “approves” for sale. Although this is not a complete shock, it is more evidence of the industry acting against investor’s best interests.

“What are ‘soft dollar’ fees?” you may ask. Let me explain a little more…Mutual fund companies pay commissions to brokerage firms (like Morgan Stanley) in order to be given priority by the firms’ sales force (which they call financial advisors). The fees exchanged between the brokerage house and the mutual fund are not disclosed to the public nor the financial sales rep. These fees create what I call “soft dollar” revenue for the brokerage houses, while often providing no value to the investor.

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Categories: Industry Ideas, News, The Market

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