Days of Soft-Dollar Payments May Be Numbered

As the mutual fund industry works to rehabilitate itself from the market-timing and late-trading scandals, recent announcements that Morgan Stanley (MWD Quote) and Massachusetts Financial Services will eliminate their soft-dollar payments for research may presage a trend.

Soft-dollar commissions have long been a part of the asset management industry, but the recent regulatory spotlight on the mutual fund industry has prompted a re-evaluation of their use as payment for research or for directed brokerage, in which commissions are channeled to other securities firms as a trade-off for selling particular funds. Critics say fund shareholders aren't getting the best price for their trades, and ultimately lose value.

"In the beginning, they were like frequent-flier miles or green stamps," that rewarded repeat business, said Nell Minow of the watchdog Corporate Library. "But this is evidence that the market is changing in the way of past scandals. In that respect, it's the end of an era." ...