Fidelity's Soft-Dollar Crusade Causes Ripples

Fidelity Investments' bold decision to force Lehman Brothers to charge it separately for trades and for research is putting pressure on other brokerages to do the same, The Wall Street Journal reports. But some in the industry point to a potential downside to eliminating soft dollars to pay for research.

Some fund companies worry that if brokerages are forced to unbundled research, these analytical reports could become scarcer to find. They also argue that if brokerages are paid less for executing trades, the quality of trade executions might fall.

Others think that if brokerage commissions are squeezed to between 2 and 2.5 cents a share, there could be consolidation among brokers, asset managers and research providers, leaving investors with fewer choices. Further, some worry that hedge funds will end up getting the better research, because they pay higher trading commissions.

While the industry debates the pros and cons of unbundling, some believe that with Fidelity's weight behind such a move, the trend is here to stay. Guy Moszkowski an analyst with Merrill Lynch, said he recently met with Todd Thomson, the CEO of Citigroup Inc.'s Global Wealth Management, and that Thomson said he believes unbundling is the wave of the future.