Mutual Fund Breakpoints: Are You Owed a Refund?
You may be eligible for a refund of a portion of the front-end sales charge that you paid when you purchased Class A shares of a mutual fund from your securities firm. An industry-wide survey indicated that investors did not receive discounts in approximately one out of every five transactions that were eligible for discounts.
Are you one of these investors? Ask yourself:
Discounts on front-end sales loads are offered for larger mutual fund investments and usually start at $50,000, but sometimes can be as low as $25,000. If you did not receive a discount to which you were entitled, FINRA requires your securities firm to refund the money.
FINRA expects that securities firms will make prompt refunds to their customers where they are aware that their customers did not receive a discount to which they were entitled. A number of firms have already begun this refund process. Additionally, FINRA expects securities firms to make refunds to customers who come forward and show that they did not receive all applicable breakpoint discounts.
FINRA is issuing this Alert to make investors aware that they may be eligible for a refund if they did not receive an appropriate discount. This Alert will explain how the discounts work and what steps you can take to find out if you are eligible for a refund.
What are Mutual Fund Breakpoint Discounts?
A single mutual fund, with one portfolio, frequently offers more than one "class" of shares to investors. Each class represents the same interest in the mutual fund's portfolio, but has different sales charges, fees, and expenses. One share class usually requires investors to pay a front-end sales charge or "load" that is deducted from the purchase price. This share class is typically called "Class A." For example, if you purchase Class A mutual fund shares with a 5.75 percent front-end sale load at a cost of $1,000, you'll pay a sales load of $57.50, with the remaining $942.50 invested in the mutual fund.
Often Class A shares offer discounts that reduce the front-end sale charge you pay. The amount of the discount is based on the size of your investment, and the discount increases as the size of your investment increases. The investment levels at which the discounts become available are called breakpoints. Breakpoint discounts usually start at investment levels of $50,000, but may begin at $25,000.
Here's what a breakpoint schedule may look like:
Sample Breakpoint Schedule
(Class A Shares)
|Your Investment Amount||Your Sales Load|
|Less than $25,000||5%|
|$25,000 but less than $50,000||4.25%|
|$50,000 but less than $100,000||3.75%|
|$100,000 but less than $250,000||3.25%|
|$250,000 but less than $500,000||2.75%|
|$500,000 but less than $1 million||2%|
|$1 million or more||0%|
You may qualify for a breakpoint discount in a number of ways:
Each mutual fund family sets its own breakpoint discounts and sets the rules regarding which accounts can be counted towards eligibility for a breakpoint discount. You can get information about the breakpoint discounts offered by a mutual fund you own by reviewing the fund's prospectus or statement of additional information, checking a mutual fund company's website, or by contacting your broker.
How Do I Find Out if I'm Entitled to a Breakpoint Discount?
To determine if you're entitled to a breakpoint discount, you may want to ask yourself the following questions:
Have I purchased a mutual fund with a front-end sales load? Not all funds charge a front-end charge or load. The only investors who are eligible for breakpoint discounts are those who purchased Class A shares of mutual funds that charge this "load." No-load mutual funds and other mutual fund share classes, such as Class B and C shares, don't offer breakpoint discounts because they do not charge front-end sales loads. You should be able to determine if you purchased a fund with a front-end sales load by looking at an account statement or confirmation showing the purchase.
Have I purchased additional funds in the same fund family? Breakpoint discounts apply to your purchase of a specific fund or funds within a family of funds. It usually doesn't matter if you made those purchases through more than one securities firm or in more than one account. To make sure you are not missing any fund investments that might count toward a breakpoint discount, you may want to review any account statements that show mutual fund holdings.
Have close family members purchased shares of this fund or fund family? In many cases, funds not only count fund purchases you made, but also purchases that others - typically close family members -- made in determining the appropriate breakpoint. To find out which family member or other mutual fund purchases you can use in determining a breakpoint discount, read the fund's prospectus or statement of additional information, check the mutual fund company's website, or contact your broker.
Is the total of all my purchases and my family's purchases together greater than $25,000? The lowest level at which a fund will offer a breakpoint is $25,000. But most fund families only offer a discount for purchases that total at least $50,000. To find the level at which breakpoint discounts start, read the fund's prospectus or statement of additional information, check the mutual fund company's website, or contact your broker.
Getting Your Refund
Many securities firms have already begun a process to refund front-end sales load overcharges to their customers. FINRA is directing more than 450 securities firms to notify customers who purchased Class A mutual fund shares since January 1, 1999, that they may be due refunds as a result of the firms' failure to provide breakpoint discounts. FINRA is also directing almost 175 of those firms with poor records of providing breakpoint discounts to complete a comprehensive review of transactions since the beginning of 2001 for possible missed discount opportunities, and a number of those firms may be the subject of enforcement actions by FINRA and the Securities and Exchange Commission.
If your securities firm has already contacted you, please follow their procedures for receiving a refund. If you have not been contacted and believe you should have received a breakpoint discount for a mutual fund purchase, contact your broker. You may want to use the Breakpoint Claim Form to make sure you provide your broker with the information they'll need to review your claim.
Your securities firm has an obligation to check their records to determine whether you qualify for a refund. However, if their records do not reflect a connection between your accounts and the accounts of your family members or if your claim is based on mutual fund holdings held in an account outside of the firm, such as at a different securities firm or in a 401(k) plan, they may not be able to tell that you are entitled to a refund unless you give them information about those accounts. Although you need not provide them with any information about these other accounts, their analysis of your right to a refund will be limited to the information they have.
If you have a valid claim that you were overcharged, your securities firm must make a full refund to you. To ensure that you get the full refund, FINRA has developed the following guidelines that firms must follow when providing refunds:
If your broker does not provide you with a refund or a satisfactory explanation of why you did not get a refund, you should file a written complaint with the firm's compliance department and ask for a written response.
If that response is not satisfactory, you can file a complaint online with either the Securities and Exchange Commission or FINRA.
Protecting Yourself in the Future
There are a number of steps you can take to make sure you are paying the lowest possible price for a fund that charges a front-end sales load:
Where to Get More Information
To receive the latest Investor Alerts and other important investor information sign up for Investor News.