I still don’t understand what is brokerage. will the broker pay money if they execute the trade? but I think the firm should pay the broker to execute the trade, is it? Thanks.
yeah, I sympathize with the confusion. I, too, find Soft Dollar Standards difficult primarily because I have no real life experience (nor can I imagine one) to pin them on. Brokerage, for the Soft Dollar Standards, for the test, is the money or “soft dollars” that the brokerage pays the money manager for the privilege of executing trades on the client’s behalf. (I know. It doesn’t happen.) But if it did, it would belong to the client. And so the money manager can only accept soft dollars which benefit the client in terms of research, etc. Still waiting for a brokerage to offer to do anything for me that even resembles soft dollars.
My take on the matter is slightly different than gjertsen’s. I’m of the view that soft dollars are products or services (e.g. research reports etc.) that the broker provides the money manager for selecting him/her. I think in the inv. mgmt. (IM) industry execution of trades is one of those things where there is little value added that can be provided by the broker, so which broker a money manager selects can often be based on what other services/incentives (i.e. ‘research’ in CFA speak) a broker can provide the money manager for selecting him/her to execute trades on the clients behalf. Since this ‘research’ can be quite useful, it can be viewed as a form of currency in itself, and hence given the name of ‘soft dollars’, as opposed to ‘hard dollars’, i.e. actual cash. Hope this helps.