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Perhaps a little more clarity on where my question orginated from...

Here are some excerpts that made me concerned...

"Last year, mutual funds and other institutional investors paid about $12.7 billion in commissions, according to research firm Greenwich Associates, and about $4.5 billion of that went toward research and other items purchased with soft dollars. But soft-dollar costs aren't included in a fund's expense ratio and usually aren't broken out by fund companies for investors to see. "

"...1998 report found one fund manager who spent soft dollars to buy a computer that was operated exclusively by his family, which used it to play video games. Other advisers, the SEC said, used soft dollars to pay telephone bills, rental-car costs, to install anti-static carpeting and to buy theater tickets."

It talks about soft dollar fees and the problem with clarifying "investment research".

I don't mean to blow up this issue as the media has a tendency to make mountains out of mole hills and I suspect (or maybe hope is more appropriate) that the firms collecting soft dollars are in fact spending those dollars on specific research. I agree those that add specific "value" are deserving of a profit of some sort. The "value" in this case has been defined as "investment research" which I think makes this a grey area according to the article above.

My guess is the SEC is going to add more stringent definitions of "investment research" which I think would make sense for all of us just as they're pushing fund companies to do a better job of disclosing fees.

The dollars discussed are significant but to a small timer like myself I'm guessing this only amounts to pennies on my portfolio. Is there anyway to tell?

Also, since I primarily invest in index funds wouldn't this be a moot point? (Nick - you brought up Vanguard which prompted the question)

Nick you also referenced "...yet another reason to buy stocks instead of mutual funds". Can you point me in the direction of where the other reasons for this might be? Just curious.


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