Hard Dollars What are hard dollars? Hard dollars are explicit cash payments a client makes to a brokerage or financial service provider in exchange for services. These are fixed, out-of-pocket charges that are known and recorded up front, such as transaction fees, monthly account maintenance charges, or direct payments for research and advisory services. How hard dollars work
* The client pays cash (via check, bank transfer, or invoice payment) directly to the firm for a specific service.
* Fees are typically disclosed and billed separately from trading activity.
* Because they are actual cash payments, hard dollars are reflected on statements and invoices and are straightforward to track and audit.
Hard dollars vs. soft dollars
* Hard dollars: cash payments made directly by the client for services.
* Soft dollars: indirect payments made using brokerage commission credits or other non-cash arrangements, where commission revenue generated from trades is used to pay for research or services.
* Key difference: hard dollars are explicit cash outlays; soft dollars are paid through commission allocation or similar arrangements tied to trading activity.
Example A client wants proprietary equity research from a brokerage. If the client has no trading relationship with that broker, they can pay for the research by sending a check — this is a hard dollar payment. Alternatively, if the client has commission credits with another broker, they might instruct that broker to use those commissions to pay for research instead — that would be a soft dollar arrangement. Why it matters
* Transparency: Hard dollar payments are clear and easy to document, which helps with expense tracking and regulatory reporting.
* Conflicts of interest: Soft dollar arrangements can create incentives to trade more to generate commissions; hard dollars reduce that particular conflict because services are paid for directly.
* Budgeting: Firms and investors can budget more predictably when costs are paid in hard dollars.
* Record-keeping: Hard-dollar transactions are simpler to reconcile and audit.
Key takeaways
* Hard dollars = direct cash payments for brokerage or research services.
* They are distinct from soft dollars, which use commission-based or indirect payment mechanisms.
* Hard dollars improve transparency and ease of accounting, while soft dollars may introduce incentive-related conflicts.
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