Investors could receive tens of millions of dollars in refunds from securities brokers who failed to deliver promised discounts on commissions on mutual-fund purchases.
The National Association of Securities Dealers said the practice was widespread and ordered that industry-wide refunds, plus interest, be made. The firms will have to check sales records going back years to determine who is eligible. But the regulator said in a notice to brokers that a survey of 2001 and 2002 fund sales found that “most [NASD] members did not uniformly deliver appropriate breakpoint discounts” to investors.
The NASD had previously said it found that in roughly one-third of the cases examined, investors didn’t get the discounts to which they were entitled, an average of $364 per transaction.
As a result, the refunds could total in the tens of millions of dollars spread among some of the country’s 95 million fund investors, who have a total of $4.28 trillion invested in stock and bond funds. “We are dealing with a very systematic problem in mutual-fund transactions that covers well over 600 firms,” said Marc Menchel, executive vice president at the NASD.
In the past, the NASD’s enforcement actions have mandated one or a handful of firms at a time return commission overcharges to investors, but the latest ruling applies across the industry.
Breakpoints are dollar levels at which investors are supposed to receive discounts when they purchase shares in mutual funds that carry upfront sales charges. Discounts typically start on fund purchases of $25,000 or more, but many investors can qualify because past shares acquired in a single fund family are supposed to be counted.