Breakpoint discounts are volume discounts to the front-end sales load charged to investors who purchase Class A mutual fund shares. The extent of the discount depends on the amount invested in a particular family of funds. For example, a mutual fund might charge a front-end load of 5.75 percent for share purchases of less than $50,000, but reduce the load to 4.50 percent for investments between $50,000 and $99,999, and further reduce or eliminate the load for larger investments.
Investors can qualify for breakpoints through a single purchase of Class A mutual fund shares, with a letter of intent (LOI) or through rights of accumulation (ROA). An LOI allows investors to receive breakpoint discounts based on a commitment to buy a specified number of shares over a period of time, usually 13 months. For example, by signing an LOI to buy $25,000 worth of fund shares over the course of a year in $5,000 increments, an investor can obtain the $25,000 breakpoint discount on each $5,000 purchase.
An ROA allows an investor to aggregate his own fund shares with the holdings of certain related parties, such as spouses and children, toward achieving the investment thresholds at which breakpoint discounts become available. Investors also may be able to aggregate holdings they have in different accounts at the same broker-dealer, at different broker-dealers, or in different types of accounts, such as 401(k)s and 529 plans, as well as the holdings in the accounts of related parties toward achieving an investment threshold at which a breakpoint discount is available.
In the process of conducting routine firm examinations in 2002, NASD identified problems in mutual fund transactions, in which eligible customers did not always receive their entitled breakpoints. In 2003, at the request of the SEC, NASD, joined by the Securities Industry Association (SIA) and the Investment Company Institute (ICI), led a task force on breakpoints charged with recommending industry-wide changes to address errors and missed opportunities to provide breakpoint discounts.
As a result, FINRA has taken a number of steps to ensure that investors who did not receive appropriate discounts are able to obtain a refund and that in the future investors will receive all discounts to which they are entitled.
Breakpoint Disclosure Statement
To assist firms in fulfilling their obligation to provide all available breakpoint discounts on the sales of front-end load mutual funds, FINRA recommends that firms at the time of purchase or periodically thereafter provide investors with a Written Disclosure Statement explaining the availability of breakpoint discounts. FINRA provides this statement as an example of what it believes is appropriate. Firms may wish to tailor the statement to reflect the rules of the mutual funds they sell.
Assisting Your Clients
You can help your clients assess their opportunities to receive breakpoint discounts by taking the following steps:
- Become familiar with breakpoint discounts offered by the mutual funds that you sell. These are located in a fund’s prospectus and/or statement of additional information.
- Discuss with your clients whether breakpoint discounts are available before they buy mutual fund shares.
- Ask your clients for the information necessary to determine their eligibility for breakpoint discounts, such as their fund holdings and the holdings of their spouse or children, among other relatives.
- Record this information in each client’s file so it can be applied to future purchases of a particular fund, which might result in additional breakpoint discounts.
FINRA provides an outline for training associated persons involved in the sale of Class A shares of front-end load mutual funds. The purpose of the outline is to ensure that registered representatives understand the specific issues that govern breakpoint eligibility. The outline serves as a model of the critical breakpoint topics firms should address in training.
Since FINRA recognizes that every firm has a unique business model, firm element training methods and content may vary. However, every firm that sells or anticipates selling mutual funds, no matter its business model, should cover the topics listed in parts I and II of the outline. FINRA also has developed the Breakpoint Checklist and Breakpoint Worksheet to help firms and associated persons gather the information necessary to deliver available discounts on the sales of Class A shares.
|FINRA Fund Analyzer|
FINRA's Fund Analyzer compares the expenses of different fund classes, including breakpoints.
|Tool / Resource||02-09-2015|
|Mutual Fund Breakpoint Refund Interest Calculator|
Interest Refund Calculator helps member firms determine interest due on missed breakpoint discounts.
|Tool / Resource||02-09-2015|
|Understanding Mutual Fund Classes|
As an investor, you may have read about "Class A," "Class B," Class C", or other classes of mutual fund shares. If you are thinking about choosing one of these classes, it is important for you to understand the differences between them. FINRA regulates broker/dealers and their registered representatives, and we provide investors with information about securities products and services.
|Fifteen Firms to Pay Over $21.5 Million in Penalties to Settle SEC and NASD Breakpoints Charges|
Fifteen Firms to Pay Over $21.5 Million in Penalties to Settle SEC and NASD Breakpoints Charges
|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.
|SEC and NASD Announce Actions as a Result of Findings of "Breakpoint" Overcharges on Mutual Fund Transactions|
SEC and NASD Announce Actions as a Result of Findings of "Breakpoint" Overcharges on Mutual Fund Transactions
|Notice to Members 03-47|
Refunds to Customers Who Did Not Receive Appropriate Breakpoint Discounts in Connection with the Purchase of Class A Shares of Front-End Load Mutual Funds and the Capital Treatment of Refund Liability
|Joint NASD/Industry Breakpoint Task Force Issues Report|
Tuesday, July 22, 2003 Nancy A. Condon 202-728-8379 Michael Shokouhi 202-728-8304 Washington, DC — NASD today issued a Task Force report on mutual fund “breakpoint” discounts, which recommends a number of operational enhancements, disclosure requirements and regulatory changes in response to
|SEC, NASD, NYSE Release Findings of Breakpoint Examination Sweep; Broker-Dealers to Review Transactions|
Tuesday, March 11, 2003 Nancy A. Condon 202-728-8379 Michael Shokouhi 202-728-8304 Washington, D.C., March 11, 2003 — Securities regulators issued a report today showing that nearly one in three mutual fund transactions in front-end load mutual funds that appeared eligible for a breakpoint discount
|NASD Announces Joint NASD/Industry Breakpoint Task Force|
Tuesday, February 18, 2003 Nancy A. Condon 202-728-8379 Michael Shokouhi 202-728-8304 Washington, DC — NASD announced today the formation of a 22-person task force to recommend ways in which the mutual fund and brokerage industries can assure that investors are not overcharged when they purchase
|NASD Alerts Investors to Problems in Mutual Fund Breakpoints|
Wednesday, January 15, 2003 Nancy A. Condon 202-728-8379 Michael Shokouhi 202-728-8304 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
|Mutual Fund Breakpoints: A Break Worth Taking|
Mutual funds often offer discounts on front-end sales charges or loads for larger investments. The investment levels at which the discounts become available are called "breakpoints."
|Notice to Members 02-85|
NASD Requires Immediate Member Firm Action Regarding Mutual Fund Purchases and Breakpoint Schedules
|Report of the Joint FINRA/Industry Task Force on Breakpoints|
At the request of the U.S. Securities and Exchange Commission, NASD, working with the Securities Industry Association (SIA) and the Investment Company Institute (ICI), led a task force on breakpoints (PDF 537 KB), a problem first uncovered by NASD’s routine examination program. The task force was
|Breakpoints Checklist & Worksheet|
To assist the financial industry in fulfilling its obligation to provide all available breakpoint discounts on sales of Class A shares of front-end load mutual funds, the Joint NASD/Industry Task Force recommended that broker/dealers require registered representatives to complete standardized checklists or worksheets, which record the relevant account data, when executing Class A shares transactions.
|Status Report: Implementation of Recommendations of Joint NASD/Industry Breakpoint Task Force|
At the request of the Securities and Exchange Commission ("SEC"), NASD convened and led a Joint NASD/Industry Breakpoint Task Force, with representatives from, among others, Investment Company Institute ("ICI"), Securities Industry Association ("SIA"), National
|Breakpoints Written Disclosure Document|
To assist the financial industry in fulfilling its obligation to provide all available breakpoint discounts on sales of front end load mutual funds, the Joint NASD/Industry Task Force recommended that broker-dealers provide investors with a Written Disclosure Statement, explaining the availability of breakpoint discounts, at the time of purchase or on a periodic basis.
|Breakpoints Training Outline|
NASD, in conjunction with an industry working group, developed the outline provided below in response to Recommendation J of the Report of the Joint NASD/Industry Task Force on Breakpoints, which recommended that member firms provide enhanced training regarding mutual fund breakpoint discounts.
|Letters to NASD Members- May 2003|
May 2003 Dear Small NASD Member Firms: I would like to call to your attention NASD's announcement that the deadline for the NASD breakpoint compliance self-assessment has been extended from May 15 to June 13, 2003. As you are aware, NASD is requiring certain member firms that have sold front
|Mutual Fund Breakpoint Assessment Q&A|
Below are questions and answers regarding the Mutual Fund Breakpoint Assessment. 1. When counting transactions to determine whether our firm qualifies for the de minimis exemption, how should the following situation be handled? If a customer invests $100,000 in five mutual funds ($20,000 each) in
|Breakpoint Extensions for Notifying Customers|
NASD has learned that some members that have been directed to provide customers with written notification regarding the availability of breakpoint refunds are experiencing unforeseen logistical difficulties in meeting the January 15, 2004 deadline with respect to some customers. The logistical
|Common Definitions Mutual Funds Should Use to Describe Breakpoint Discount Rules|
The Joint NASD/Industry Task Force recognized that one of the challenges in delivering breakpoint discounts was the lack of "common definitions" of terms frequently used to define breakpoint opportunities, and charged an industry working group (consisting of ICI and SIA members, and NSCC)
|Task Force Recommendations for New Confirmation Content|
The Joint NASD/Industry Task Force recommended two changes to mutual fund confirmations that are intended to help investors determine whether they received all the breakpoints discounts to which they were entitled on each mutual fund transaction. To implement these recommendations, industry working
|Customer Letters About Breakpoint Refunds|
NASD directed all firms that processed more than a minimal amount of mutual fund transactions using an automated process to conduct a self-assessment of their mutual fund transactions in 2001 and 2002 and the sales discounts provided, and to submit the results to NASD. As of July 30, 2003, the 642 firms listed below submitted assessment results to NASD.
|Mutual Fund Breakpoint Information for Investors|
Millions of Americans invest in mutual funds each year, yet research has shown that many investors are unaware of how much they pay to own mutual funds.