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FINRA

FOR RELEASE:
CONTACTS:
Wednesday, January 15, 2003
Nancy A. Condon 202-728-8379
Michael Shokouhi 202-728-8304



 

 

NASD Alerts Investors to Problems in Mutual Fund Breakpoints

Washington, DC — NASD today alerted investors to the fact that they may not have consistently received breakpoint discounts to which they are entitled on their front-end load mutual fund purchases. NASD exams of a number of firms over the course of the last few months have revealed that some firms may lack the operational procedures necessary to capture the essential information to ensure that breakpoint discounts are given to customers.

 

NASD has posted an Investor Alert on Mutual Fund Breakpoints, as well as an Expense Analyzer for mutual funds to allow investors to make better decisions when purchasing mutual funds and thus be better equipped to protect themselves. The Investor Alert, "Mutual Fund Breakpoints: A Break Worth Taking," explains how breakpoints work and how investors can make sure that they are charged the lowest possible front-end load on load mutual funds they buy. It is available at www.nasdr.com/alert_breakpoint.htm.

 

"The information in today's Investor Alert, along with disclosure information from the fund company and the new fund expense analyzer tool, will help investors understand when they should be receiving a breakpoint discount." said Mary L. Schapiro, NASD Vice Chairman and President of Regulatory Policy and Oversight. "In addition, NASD has notified firms that sell mutual funds that they must review their systems to ensure that investors are being charged the correct load fees and that if eligible to receive a breakpoint, they receive it."

Schapiro said NASD first uncovered the issue during a routine exam conducted by NASD's Philadelphia District office.

 

In addition to this Investor Alert, NASD is taking a number of steps to protect investors. Along with other regulators, NASD is conducting examinations of brokerage firms' mutual fund sales load practices. NASD also has issued a Notice to Members directing NASD member firms that sell mutual funds to immediately review the adequacy of their policies and procedures to ensure that they are designed and implemented so that investors are charged the correct sales loads on mutual fund transactions.

 

Research has shown that many investors are unaware of how much they pay to own mutual funds and that even small differences in fees can results in thousands of dollars in costs over time that could have been avoided. For example, a 1 percent increase in fees over 20 years of holding a mutual fund will mean that the investment grows by 18 percent less over that time. Likewise, commissions and other charges have a significant impact on returns, and correctly calculated breakpoints are one way to minimize those costs.

 

The Expense Analyzer, available without charge at www.nasdr.com/fundcalc/expense_analyzers.asp, is an Internet-based tool for investors to enable them to compare the fees and expenses they pay for mutual funds and exchange traded funds, or ETFs. Unlike others, NASD's fee calculator also allows comparisons between two funds or classes of funds at one time, tells the investor where the fees of a particular fund fall compared to industry averages, and highlights when investors should look for breakpoint discounts.

 

NASD is the leading private-sector provider of financial regulatory services, dedicated to bringing integrity to the markets and confidence to investors through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web Site at www.nasd.com.