Brokers Not Passing Along Discounts

Brokers did not give large-scale investors in mutual funds the discounts they should have gotten in nearly one in three transactions, a study by regulators found.

The Securities and Exchange Commission is requiring about 2,000 brokerages to review their transactions in mutual funds sold with upfront sales charges.

An inspection “sweep” of 43 brokerages from November through January by the SEC, the New York Stock Exchange and the NASD (formerly the National Assn. of Securities Dealers) found that most firms -- apparently inadvertently -- failed to provide required discounts in at least some instances, regulators said Tuesday.

The breakpoint discounts are required by NASD rules to go to investors in funds with upfront sales charges when they invest $50,000, $100,000, $250,000, $500,000 and $1 million. Less than 7% of all fund sales last year involved upfront charges.

The missed discounts averaged $364 per transaction, regulators found. They said most failures to provide the discounts did not appear to be intentional. Brokers, for example, frequently neglected to add together different funds in the same group of funds owned by the same customer to reach the breakpoint sum, regulators said.

The problems arose less frequently at brokerages that process fund transactions using paper documents as opposed to electronic processing, the examination found.

Investors who believe they have not received breakpoint discounts to which they are entitled should first contact their brokers and ask for the discounts, regulators said.