Broker/Dealers Withhold Discounts in Mutual Fund Breakpoints
January 13, 2003
The National Association of Securities Dealers (NASD) has warned brokers to be more diligent about granting breakpoints to mutual fund customers. Such breakpoints, set by mutual fund companies to reduce front-end sales loads from several basis to several percentage points, generally occur at the $50,000, $100,000, $250,000 and other high marks, sometimes even reducing front-end fees to zero on share purchases of $1 million or more.
Without naming specific brokers, NASD charges that many of them intentionally bill more than they should, and says this is "particularly [egregious] for mutual fund transactions involving letters of intent and rights of accumulation."
NASD also notes that with the advent of automated processing and settlement systems, it is "essential" for brokers to program such systems to automatically recognize breakpoints.
The self-regulatory agency maintains correct billing is the responsibility of the brokerage community, not mutual funds: "Due to the fact that automated processing and settlement systems, such as Fund/SERV, may not disclose to the mutual fund company the identity of the member's customer, members cannot rely on the mutual fund company to allocate the correct breakpoint to a transaction or override the member's failure to do so."