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Joint Report Examines Procedures for Providing Breakpoints to Fund Shareholders
Washington, DC, March 13, 2003 - The Institute strongly supports the ongoing efforts to ensure that shareholders receive the breakpoints provided by mutual funds.
Most recently, a joint report issued by the SEC, NASD, and NYSE examines broker-dealers that sell mutual funds and their procedures for ensuring that investors receive the discounts, or breakpoints, on front-end sales charges to which they are entitled. The report concludes that broker-dealers who sell fund shares and offer breakpoint discounts should review and improve their practices to ensure that customers receive appropriate breakpoint discounts.
Based on the report’s findings, broker-dealers engaged in front-end load mutual fund transactions will be immediately required by the NASD to conduct an assessment of a sample of their front-end load mutual fund sales transactions in order to provide the firm and regulators with an indication of whether the firm has provided appropriate discounts to customers. The NASD, in consultation with the SEC, will develop a standard methodology that will be designed to provide a sample of the firm’s transactions and opportunities for a breakpoint.
Firms will be required to submit the results of the sample analysis to the NASD within a specified deadline. Based on each firm’s sample review, additional action may be taken, including requiring firms to contact customers, or conducting a larger review of transactions over a longer period of time. Firms will also be required to refund to customers any amounts found to have been overcharges. Regulators will also consider disciplinary or enforcement actions. Furthermore, all broker-dealers that sell front-end load mutual funds are obligated to review past transactions to ensure that customers have been charged appropriate sales charges.
The findings in the report are based on an examination of 43 registered broker-dealers that sell mutual funds with a front-end sales load from November 2002 to January 2003. Examinations were conducted by the SEC’s Office of Compliance Inspections and Examinations, NASD, and NYSE.