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What Are Soft Dollars? How Do They Work Today?

Traders Magazine, February 2004

Gregory Bresiger

Soft dollars, according to the Barron's Finance and Investment Handbook, are "the paying of brokerage firms for their services through commission revenue, rather than through direct payments, known as hard-dollar fees." Ted Aronson of Aronson+Johnson+Ortiz, offers a simple definition."Soft dollars are any commissions that are not used to achieve best execution." However, there's a Catch 22 to Aronson's explanation. "No one knows how to define best execution," he conceded. Whatever soft dollar arrangements are - and there are more than a few professionals who would disagree with Barron's or Aronson's version - they have a considerable history.

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