Fidelity Investments will cease paying brokerage trading costs inclusive of soft-dollar arrangements beginning July 1, The Wall Street Journal reports. Fidelity said it paid $815 million in trading commissions last year, of which $160 million, or roughly 19%, went for soft dollar research or market data.

Fidelity expects the move will decrease investors’ fees, although it did not indicate by how much. Fidelity also anticipates that the elimination of soft dollars will increase its own market data and research costs, but only by $40 million to $50 million a year, Eric Roiter, general counsel of Fidelity’s investment management division, told The Journal. "We are simply putting our money where our mouth is," Roiter said. "We hear the consternation about soft dollars."

Those in favor of soft dollars fear that the move by the nation’s largest fund company will encourage other brokerages to eliminate soft dollars, which, in turn, will cause insightful research by small research firms to dry up. The move by Fidelity could certainly portend a trend, as Fidelity’s trades comprise a large portion of the commissions that mutual fund and institutional investors pay each year. Last year, Fidelity paid 53% of the total $1.52 billion in commissions.

Fidelity wrote a letter to the SEC in March suggesting that brokerage firms itemize the soft dollars and trading costs in their commissions, in order to increase competition and lower costs. MFS also decided in March to stop paying soft dollars.

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The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

 

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