Task Force Advises Shift in Fund Sales Practices

Brokers and mutual funds should change their practices regarding “breakpoint” sales of mutual funds to ensure that investors who buy front-end load funds don’t pay too much, a NASD task force recommended.

Breakpoints are discounts that fund buyers are supposed to receive on front-end load funds depending on the amount they invest.

The NASD began investigating breakpoint violations last summer, and discovered that at least 43 firms overcharged. In March, Morgan Stanley was sued by investors for failing to give them these discounts.

“We’re going to provide a menu of recommendations for brokers and the mutual fund industry to prevent this,” said Mary Schapiro, head of regulatory policy for the NASD.

Both Securities and Exchange Chairman William Donaldson and the Investment Company Institute, which represents the fund industry, welcomed the recommendations. The institute said the fund industry “will voluntarily implement the task force recommendations.”

Breakpoint discounts generally apply at investment levels of $50,000 to $1 million, with the discount increasing as the amount invested increases. The NASD investigation showed that many brokers and funds were ignoring breakpoints.