Frequently Asked Questions about Breakpoints
To learn more about FINRA breakpoints initiatives, please see our Mutual Fund Breakpoints Web page.
1. Where can I find the schedule of breakpoint discounts for a mutual fund?
If a mutual fund offers breakpoint discounts, the breakpoint schedule will be listed in the fund's prospectus and statement of additional information. To access and download mutual funds prospectuses, go to the Securities and Exchange Commission's (SEC) EDGAR Database on the SEC website. Mutual fund prospectuses and statements of additional information also may be available online at a fund company's website.
2. What is a Right of Accumulation (ROA)?
A right of accumulation (ROA) allows investors to aggregate their own holdings as well as the holdings of certain related parties, such as spouses and children, toward achieving the investment thresholds at which breakpoint discounts become available. Thus, under a fund's ROA rules, an investor may aggregate holdings that he has 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. To ensure that your clients receive all the discounts to which they are entitled under a mutual fund's ROA rules, you must understand the funds' ROA rules and gather information concerning your client's own holdings and the holdings of the appropriate related parties. To find information regarding ROA rules for each mutual fund, you should review the fund's prospectus and statement of additional information, or consult with your firm's compliance officer.
3. What can I do to ensure that my clients receive breakpoint discounts?
To assess your clients' opportunities to receive breakpoint discounts, you should:
- Understand the terms upon which the mutual funds you sell offer breakpoint discounts. Breakpoint discounts and eligibility requirements are located in the fund's prospectus and/or statement of additional information.
- Discuss the availability of breakpoint discounts with your clients prior to purchasing the mutual fund shares.
- Ask your clients for the information necessary to determine their eligibility to receive breakpoint discounts. This includes information about your client's own holdings as well as the holdings of certain parties related to your client, such as your client's spouse or children.
- Record this information in each investor's files so that future purchases of this fund may result in additional breakpoint discounts.
For more guidance on how to ensure your clients receive the appropriate breakpoint discount, please see our Mutual Fund Breakpoints Web page.
4. What is a Letter of Intent (LOI) and how can it help my clients qualify for breakpoint discounts?
An investor may sign a Letter of Intent (LOI), which allows the investor to receive breakpoint discounts based upon a commitment to buy a specified number of mutual fund shares over a period of time, usually 13 months. For example, an investor who plans to buy $25,000 worth of shares in a particular mutual fund over the course of a year, but in 5 increments of $5,000 could sign a letter of intent pursuant to which the investor could obtain the breakpoint discount available on purchases of $25,000 on each $5,000 purchase. Thus, signing an LOI allows the investor to take advantage of discount that would not otherwise be available. Additionally, some mutual funds allow investors to use an LOI retroactively to include the value of past purchases in the LOI period. However, if the investor does not actually make the required purchases at the end of the specified period, he or she will be required to forfeit the discounts received pursuant to the letter of intent. To determine whether an LOI is appropriate for a particular client, you should discuss your client's investing plans for the coming 13-month period and examine his or her recent purchases. For information on LOI eligibility within a specific mutual fund, see the mutual fund's prospectus or statement of additional information.
5. Where can I find information to help educate my clients about breakpoint discounts?
We have issued two Investor Alerts that discuss mutual fund breakpoints. They are Mutual Fund Breakpoints: A Break Worth Taking and Understanding Mutual Fund Classes. In addition to issuing Investor Alerts, FINRA has developed a Fund Analyzer that may help investors choose the right mutual fund share class in order to minimize fees.
6. When recalculating sales charges for Class A purchases, should firms include the value of mutual fund holdings in Class B shares held in the same fund family?
The answer to your question depends on how the particular fund family establishes eligibility for breakpoint discounts. If the particular fund family bases its breakpoint eligibility on different classes of shares that an investor may have purchased, then you have to take into account such purchases when calculating the applicable breakpoint discounts. In this regard, you should review the fund's prospectus and Statement of Additional Information, which should provide a detailed description of its breakpoint eligibility criteria.
7. Where can I find more information about Mutual Fund Breakpoints and discount eligibility?
Read the mutual fund prospectus or Statement of Additional Information, check a mutual fund company's website, or ask a financial professional for information on the terms and conditions of any available breakpoints. You may also wish to read our Investor Alert, Mutual Fund Breakpoints: A Break Worth Taking. Mutual funds that have front-end sales charges may offer discounts for larger investments; the amounts at which these discounts become available are called "breakpoints." In order to research eligibility for a breakpoint discount, FINRA has created a Fund Analyzer. This tool allows you to look up breakpoint schedules and linkage rules for mutual funds with sales charges to ensure discounts are given where applicable.