Mutual funds typically enter into soft-dollar deals with stock brokers. In a typical soft-dollar deal, a fund intentionally overpays commissions when it buys or sells stocks, and the broker rebates some (or most) of those commissions in the form of goods or services that the fund manager can use in its business. For example, a mutual fund might agree to overpay commissions to broker ABC, and broker ABC will, in turn, agree to pay for the fund manager's "Bloomberg terminal" for the year. There are several problems with soft-dollar deals:

• They are poorly disclosed.
  
  
• The overpaid commissions come out of shareholder pockets, but are not reflected in the fund's expense ratio.
  
  
• There is no assurance that the goods or services received by the fund manager actually benefit the shareholders who, in effect, paid for them.
  
  
• Soft-dollar deals can encourage excessive trading and stock turnover, since more trades mean more soft-dollar credits for the fund manager. If soft-dollars deals weren't allowed, fund managers would have to pay for the goods and services they receive out of their own pockets.