Soft Dollars
Research and brokerage services received in return for directing client trades.
What is Soft Dollars?
An adviser may receive research and brokerage services from a broker-dealer in exchange for sending it client trades, under the Section 28(e) safe harbor, if the services genuinely help in making investment decisions and the commissions are reasonable in relation to them. Items that do not assist investment decisions - office rent, furniture, travel, marketing - are outside the safe harbor. Soft-dollar arrangements must be disclosed.
Soft Dollars: a worked example
Research software paid for with client commissions can qualify; the firm's office lease cannot.
More terms in Ethics & Fiduciary Obligations
Form ADV Part 2 Brochure Delivery
Deliver 48 hours before the contract, or at signing with a 5-business-day exit.
Advisory Contract Requirements
Written, specific about fees, no assignment without consent, no waiver of rights.
Assignment of an Advisory Contract
Transferring a client contract requires the client's consent - including by change of control.
Performance-Based Fees & Qualified Clients
Allowed only for qualified clients: $1.4M with the adviser or $2.7M net worth (from June 29, 2026).
Prepaid Fees & Financial Requirements
Prepayment over $500, six months ahead, triggers net worth and balance sheet rules.
Custody
Holding, or having authority to obtain, client funds or securities.
Discretionary Authority
Deciding the asset, the amount, or buy versus sell - without asking first.
Third-Party Trading Authorization
Anyone other than the owner needs written authority to trade the account.