Soft Dollars Are Falling Hard

Mutual funds and investment managers cut their use of indirect brokerage payments by almost 20% last year as they eyed the likelihood of the Securities and Exchange Commission curbing the sometimes controversial practice.

According to Greenwich Associates, an institutional investment consulting group, the use of "soft dollars" -- a means to pay brokerages for services through commission revenue rather than direct payments -- dropped by 18% in 2003. The difference was a direct result of SEC rumblings that tackling abuses of the practice is high on its agenda for reforming the securities industry, the consulting group said.

"The declines in soft dollar usage reflect the expectation that in the current environment, soft dollars are unlikely to escape regulatory action," Greenwich Associates consultant John Colon said. "As that perception takes hold, we expect to see even deeper cuts in the future, either in the form of across-the-board reductions in soft dollar usage, or in a paring back of the types of research and services purchased with soft dollars." ...