Brokerage vs Soft Dollars

What is the difference? I got a question wrong that asked can a clients brokerage by used to benefit another client. I said yes relating this to soft dollars.

Why don’t you post the question, so that we can see it in context?

you should be careful here. the key here is that soft dollars should benefit the client who pays those brokerage fees. in some situations when a client chooses to use client-directed brokerage, he shouldn’t benefit from soft-dollar arrangements of other clients.

Say a comparable broker charges 0.5% to execute trades with no extra services. Your brokerage charges 1.5% to execute trades, but you also receive research reports and general industry outlook reports as part of the deal. The Soft Dollars would be the amount equaling the 1% spread between services. The CFAI would have you break out the soft dollar amount each period to the best of your ability and distribute the costs to the accounts which received the benefits of the services provided by soft dollar expenditures. In other words, if you incurred the 1% spread trading for account Y and used the services to research a great buy for account X, you should attribute the soft dollar charges to account X.