Breakpoints Training Outline

I) General Breakpoint Information

  1. Mutual fund breakpoint definition
  2. Location of breakpoint-related information
    1. Prospectus
    2. Statement of Additional Information (SAI)
    3. Mutual fund web sites
  3. Breakpoint rules vary across mutual fund families
  4. Impact of breakpoint eligibility on share class selection and suitability analysis

II) Fundamentals of Breakpoint Eligibility

  1. Determining breakpoint eligibility
    1. Types of accounts eligible (e.g. 401(k), 529 plan, IRA, directly-held with mutual fund)
    2. Account holders eligible (e.g. spouse, children)
    3. Fund holdings eligible (e.g. at the firm or away from the firm)
  2. Eligibility based on current purchase amount
  3. Rights of Accumulation (ROA)
    1. ROA Defined
    2. Types/examples of ROA
      1. Existing customer holdings
        1. Same fund family, same account
        2. Same fund family at other broker/dealer
        3. Other eligible fund holdings at broker/dealer or elsewhere
      2. Other eligible account holders
        1. Same fund family in any eligible account at broker/dealer or elsewhere
      3. Purchases made the same day
    3. Obligation to inquire versus customer privacy issues
  4. Letter of Intent (LOI)
    1. LOI Defined
    2. Appropriateness of recommending LOI
      1. Based on customer's investment plans
      2. Consequences of customer not fulfilling LOI
    3. Types/Examples of LOI
      1. Existing LOI
      2. New LOI
        1. Based on plans to purchase over next 13 months
        2. Retroactive LOI based on previous, current, and possibly future purchases
    4. LOI held by other eligible account holders
  5. Valuation of eligible fund holdings
    1. Current net asset value (NAV)
    2. Public offering price (POP)
    3. Historical cost
      1. Documentation required for historical cost

III) Firm-specific topics

  1. Types of communications and materials the firm is planning to send or has sent to customers regarding breakpoint issues (e.g. special notices, written disclosure statements, inclusion of breakpoint information on trade confirmations)
  2. How to enter breakpoint information into order entry system; or, how to record breakpoint information on paper application
  3. Where to store account linkage information so that the right breakpoint discount is applied to current and future purchases
  4. Where to record the disclosure of availability of breakpoint discounts
  5. Where to record that registered representative made the necessary inquiry to gather the relevant data to calculate breakpoint discounts before transactions are processed
  6. Supervisory systems and procedures (for registered principals)

IV) Other topics

  1. Understanding opportunities available to customers to move their investments without sales charge from fund to fund within a fund family through reinstatement privileges, and between fund families through NAV transfer privileges
  2. Procedures for handling customer requests for refund of missed breakpoint discounts


Although FINRA believes that this outline will assist in educating registered representatives regarding breakpoint discounts and the need to deliver all available discounts, the use of this outline to develop training programs does not diminish members' obligation to provide proper training and supervision to registered representatives that sell mutual funds. Likewise, use of this outline does not constitute a "safe harbor" with respect to a member firm's obligation to comply with all applicable rules and regulations.

 

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Last Updated: 12/17/2003