Breakpoint Sales and Share Class Issues

Overview

Shares in mutual funds are, in many cases, sold at different commission rates depending on the number of shares that are purchased, with higher share amounts sold for a somewhat lower brokerage fee. A common violation (and one of which the securities regulators are keenly aware) is a broker-dealer selling shares in a volume that is below the "breakpoint" at which a discount applies in order to collect a higher commission.

Similarly, funds often have different share classes that invest in the same assets but are subject to different sales charges and operating expenses. Thus, for example, an investor who intends to hold for a shorter period might be better off buying shares with a lower sales charge although subject to higher periodic fees. Broker-dealers have an obligation to sell each customer in the share class that is appropriate for the that customer.

Because mutual funds are one of the most common investments of retail investors, the securities regulators are very aggressive in pursuing sales practice claims with respect to the product.

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