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Breakpoints Brouhaha

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The National Association of Securities Dealers (NASD) is accusing some of its member firms of failing to charge investors the proper breakpoints on mutual fund transactions.

Breakpoints are discounts provided on purchases of mutual funds that are sold with front-end sales charges. For example, the NASD says, a mutual fund might charge a front-end sales load of 5.75% for all purchases less than $50,000, and reduce that front-end load to 4.50% for purchases of at least that much, but less than $100,000. The sales charge may be further reduced–or eliminated–for higher-level purchases. Mutual fund families and individual funds can set terms concerning breakpoints, as long as those terms comply with applicable laws and disclosure rules.

During examinations, the NASD and the Securities and Exchange Commission found evidence that some brokerage firms have failed to charge investors the correct sales loads “particularly for mutual fund transactions involving letters of intent and rights of accumulation.” In a recent letter to member brokerage firms, NASD warns those firms to be more diligent in reviewing their policies and procedures concerning breakpoints. The advent of automated processing and settlement systems like Fund/SERV, the NASD told brokers, makes it “essential for [brokers] to enter correctly into these systems the breakpoint information pertaining to customer transactions.”

While the NASD has yet to name the brokerage firms that have overcharged investors, The Wall Street Journal reports the NASD will soon take action against a number of firms.

For the full text of the NASD Notice, go to

Washington Bureau Chief Melanie Waddell can be reached at [email protected].


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