The National Association of Securities Dealers task force on mutual fund breakpoints issued its report Tuesday, calling upon every link in the mutual fund distribution chain to facilitate price breaks for eligible customers.
Beginning with fund companies, the task force urges that they make investors and broker/dealers aware of such discounts and not bury the information in a fund prospectuss statement of additional information, or describe it in obtuse terms. Instead, fund companies should clearly explain breakpoint discounts in their prospectuses and on their web sites, the group suggested.
The task force also concluded that broker/dealers possess the necessary information to ascertain whether a customers current or historical purchases entitle them to such discounts. Should this mean counting related accounts, the task force said, broker/dealers and their transfer agents need to adjust their computer and accounting systems accordingly and share the information with fund companies. While such adjustments could be costly, the task force said, they are necessary because records are at the heart of the problem. "The process of linking or aggregating related accounts is challenging and is the crux of the problem faced by the mutual fund and securities industries," the task force said.
As a first step, the task force suggested that the fund industry create a central database of pricing methods, breakpoint schedules and linkage rules. As to consolidating the information across various brokers and fund families, the task force noted that the Depository Trust & Clearing Corps subsidiary National Securities Clearing Corp. already has a database that contains breakpoint information on a small number of fund families that could be expanded. This would mean turning NSCCs Fund/SERV fund clearing and settlement system into an omnibus database on historical purchases that transfer agents could use to readily recognize breakpoint opportunities, the task force suggested.
Finally, noting that being charged the appropriate sales load is a vital right of investors, the task force called upon the NASD, the New York Stock Exchange, the Securities and Exchange Commission and other regulators to remain vigilant about breakpoints. Following the NASDs report, the Investment Company Institute issued a brief statement Tuesday saying the fund industry would make the necessary changes to make sure investors get their rightful breakpoints.