MFS Says It Will Stop Paying ‘Soft Dollar’ Brokerage Fees

Mutual fund firm MFS Investment Management said Tuesday that it would no longer pay “soft dollar” commissions to brokerages for certain research and other services.

The move by Boston-based MFS -- which last month agreed to pay $225 million in a settlement with the Securities and Exchange Commission over charges of improper fund trading -- is a slap at a long-standing arrangement between many fund companies and brokerages.

Soft dollar commissions essentially are inflated payments for stock trades that are supposed to cover the costs of other services, such as research, provided to fund firms.

Critics say such commissions are unfair because they are borne by fund shareholders yet are largely invisible.

MFS’ new chairman, Robert C. Pozen, said that by eliminating soft dollar commissions, MFS would have to pay about $10 million to $15 million a year for research it needs but cannot not get in-house. The company will absorb that cost and not pass it on to shareholders, he said.

“They’re making strong efforts to overcome their reputation problems that have surfaced, and this is certainly a bold move. It may well set the tone for some other firms to consider doing the same thing,” said Don Cassidy, senior analyst at research firm Lipper Inc.