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.
Mutual funds with front-end loads, or sales charges, generally enable investors to reduce front-end sales charges as the amount of an investment increases to certain levels, called "breakpoints." This Web Page provides information about mutual fund breakpoints and sales charge discounts for mutual fund transactions. Included are links to news releases, Investor Alerts, and industry reports examining breakpoints transactions.
Through its examination program, FINRA identified problems in mutual fund transactions where eligible customers did not always receive the breakpoint discounts to which they were entitled. Since that time, FINRA has taken a number of steps to ensure that investors who did not receive appropriate discounts receive a refund, and to ensure that in the future investors receive any discounts to which they may be entitled.
Investors can read an Investor Alert to see whether they may be eligible for a refund based on a missed breakpoint discount.
This press release describes some of the steps FINRA has taken to raise investor and industry awareness of this issue and to help investors receive any refunds that may be due to them.
Other information described below provides more background on mutual fund breakpoints and actions FINRA has taken in this area.
Customer Letters About Breakpoint Refunds
In 2003 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.
Based on an evaluation of those results, NASD then directed about 450 of those firms to send letters and claim forms to their mutual fund customers who purchased Class A mutual fund shares since January 1, 1999, notifying them that they may be due refunds as a result of the firms' failure to provide breakpoint discounts. NASD has advised securities firms not to modify the text of these letters.
Whether or not firms were required to send out a customer letter, and which letter the firm was required to send, was based on the firm's evaluation of its delivery of accurate breakpoint discounts. NASD directed 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. Those firms will then be sending out to customers the "Trade by Trade Refund Notification Letter."
- Sample Refund Notification Letter (PDF 12 KB)
- Sample Trade by Trade Refund Notification Letter (PDF 12 KB)
- Breakpoint Claims Form (PDF 36 KB)
- Firm List (PDF 24 KB)
SEC and NASD Announce Actions as a Result of Findings of "Breakpoint" Overcharges on Mutual Fund Transactions (11/03/03)
Investor Alert -- Mutual Fund Breakpoints: Are You Owed a Refund?
This alert can help investors determine if they may have been eligible for a breakpoint discount and if they may be owed a refund. (11/03/03)
NASD Breakpoint Ad Campaign
NASD ran this advertisement (PDF 32 KB) in a variety of national and regional publications to inform investors about breakpoint discounts and refunds that may be due to them. (11/03/03)
Reports and News
- Report of the Joint NASD/Industry Task Force on Breakpoints (07/22/03)
- Joint SEC/NASD/NYSE Report (PDF 361 KB) of Examinations of Broker/Dealers Regarding Discounts on Front-End Sales Charges on Mutual Funds (March 2003)
- Fifteen Firms to Pay Over $21.5 Million in Penalties to Settle SEC and NASD Breakpoints Charges (02/12/04)
- SEC and NASD Announce Actions as a Result of Findings of "Breakpoint" Overcharges on Mutual Fund Transactions (11/03/03)
- NASD Proposes Disclosure of Mutual Fund Compensation Arrangements (08/07/03)
- Joint NASD/Industry Breakpoint Task Force Issues Report (07/22/03)
- SEC, NASD, NYSE Release Findings of Breakpoint Examination Sweep; Broker-Dealers to Review Transactions (03/11/03)
- NASD Announces Joint NASD/Industry Breakpoint Task Force (02/18/03)
- NASD Alerts Investors to Problems in Mutual Fund Breakpoints (01/15/03)
FINRA Investor Alerts
FINRA Investor Alerts offer the information you need to protect your money and avoid scams and other investing problems. (Investor Alerts on additional topics are also available.)
- Mutual Fund Breakpoints: Are You Owed a Refund? (11/03/03)
- Class B Mutual Fund Shares: Do They Make the Grade? (06/25/03)
- Principal-Protected Funds – Security Has a Price (03/27/03)
- Mutual Fund Breakpoints: A Break Worth Taking (01/14/03)
- Understanding Mutual Fund Classes (Updated 01/14/03)
NASD Notices to Members
Notices to Members provide timely regulatory information about NASD, including reports on amended rules, legal interpretations, and compliance guidelines.
- NASD 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
- NASD Notice to Members 02-85: NASD Requires Immediate Member Firm Action Regarding Mutual Fund Purchases and Breakpoint Schedules
Letters of Acceptance, Waiver and Consent and Offers of Settlement resulting from enforcement and disciplinary actions for failure to deliver mutual fund breakpoint discounts are available to the public upon request. For convenience, NASD makes these documents available in electronic form.
Letters of Acceptance, Waiver and Consent
- American Express Financial Advisors, Inc. (PDF 435 KB)
- Bear, Stearns & Co., Inc. (PDF 390 KB)
- Brecek & Young Advisors, Inc. (PDF 399 KB)
- Cresap, Inc. (PDF 386 KB)
- David Lerner Associates, Inc. (PDF 382 KB)
- H.D. Vest Investment Securities, Inc. (PDF 396 KB)
- Kirkpatrick, Pettis, Smith, Polian, Inc. (PDF 445 KB)
- Legg Mason Wood Walker, Inc. (PDF 395 KB)
- Lehman Brothers, Inc. (PDF 388 KB)
- Linsco/Private Ledger Corp. (PDF 393 KB)
- Raymond James Financial Services, Inc. (PDF 384 KB)
- Southwest Securities, Inc. (PDF 383 KB)
- SWS Financial Services (PDF 382 KB)
- UBS Financial Services, Inc. (PDF 436 KB)
- Wachovia Securities, LLC (PDF 385 KB)