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FINRA

FOR RELEASE:
CONTACTS:
Tuesday, July 22, 2003
Nancy A. Condon 202-728-8379
Michael Shokouhi 202-728-8304



 

Joint NASD/Industry Breakpoint Task Force Issues Report

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 problems in delivering breakpoint discounts to investors purchasing mutual fund shares with front-end loads.

 

At the request of the Securities and Exchange Commission (SEC), NASD convened and led the 24-member Task Force, which included representatives from the New York Stock Exchange (NYSE), securities firms, mutual fund companies, the Securities Industry Association (SIA) and the Investment Company Institute (ICI). The SEC asked for the task force, which was chaired by NASD Vice Chair Mary Schapiro, earlier this year, after routine examinations by NASD found that a significant percentage of investors were not receiving the correct discounts.

 

Breakpoint discounts are the volume discounts to the front-end load charged to investors who purchase Class A mutual fund shares, and the extent of the discount is dependent upon the amount that the investor has invested in a particular mutual fund family. The Task Force conducted an in-depth review of the financial industry’s interaction with mutual fund customers, including processing of mutual fund share purchases with front-end loads, to fully understand why investors who purchased Class A shares of mutual funds did not always receive every available breakpoint discount. This review enabled the Task Force to develop a series of recommendations designed to facilitate full and accurate delivery of these breakpoint discounts in the future.

 

“Getting breakpoint discounts right is an important investor protection issue,” said Robert R. Glauber, Chairman and CEO of NASD. “Working with the SEC, NYSE and the securities and mutual fund industries, NASD is committed to both helping investors receive refunds for missed breakpoints, and ensuring investors receive the appropriate discount when purchasing mutual funds.”

 

“I am grateful to the members of the Task Force, who spent a great deal of time working through this important issue. The industry, led by the SIA and ICI, stepped forward to address this issue and propose viable solutions to the problem. We shared the common goal of putting investors first.”

 

The recommendations contained in the Task Force Report will affect virtually every level of the mutual fund distribution chain, including broker-dealers that sell mutual funds, the mutual funds and the transfer agents that administer mutual fund accounts.

The report recommends that:

  • mutual fund companies take steps to make investors aware of the availability of breakpoint discounts;
  • broker-dealers adopt policies and practices to gather the appropriate information from investors so that they can take advantage of all available breakpoint discounts;
  • transfer agents and broker-dealers modify the systems used to execute mutual fund transactions; and
  • regulators, such as NASD, NYSE and the SEC, and the mutual fund and securities industries continue to take active measures to educate the investing public about breakpoint opportunities, such as NASD’s Investor Alert, Mutual Fund Breakpoints: A Break Worth Taking

The industry has already started to implement the report’s recommendations. The SIA, ICI, and the National Securities Clearing Corporation, which clears most mutual fund transactions, will be leading this effort. In addition, NASD, the NYSE and the SEC will examine firms to ensure that they are meeting their responsibility to deliver breakpoint discounts.

 

Investors who believe they have not received breakpoint discounts to which they were entitled should first contact their brokers and ask whether a discount should have been applied and, if so, that a refund be made. If a broker does not correct the account or provide a satisfactory explanation, the investor should write a letter to the firm's compliance department and ask for a written response. If that response is not satisfactory, the investor can file a complaint with the SEC online at www.sec.gov/complaint.shtml or at NASD's Complaint Center.

 

NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity 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.