‘Soft-dollar’ deals draw SEC’s ire

Securities and Exchange Commission Chairman Christopher Cox on Thursday called on Congress to repeal legal protections for a long-running Wall Street practice in which money managers pay above-average trading commissions to brokerage firms in exchange for research and other perks.

Regulators have called these transactions -- known on Wall Street as soft-dollar deals -- little more than kickbacks. In exchange for the inflated fees, money managers may receive computers, office administration services and other items not directly related to the management of customers’ investments.

Cox said in a speech to business leaders in New York that “soft dollars need to see the light of day.” Congress should ban the practice or significantly reduce protections for soft-dollar arrangements, he said, adding that he would prefer an outright ban.

“There is a lack of transparency that may be causing higher costs that are borne on the investor,” he said. “Money managers should never be put into a position where they have incentive to not put their clients first.”

The SEC chief said that money managers might use soft-dollar transactions charged to one client to benefit another group or help attract new business.

“This witch’s brew of hidden fees and conflicts of interest is at odds with the investor’s best interest, and we all know we can do better,” he said.