The National Association of Securities Dealers (NASD) has issued a warning to its members to be more diligent about granting breakpoints to mutual fund customers. Such breakpoints, set by mutual fund companies to reduce front-end sales loads by several basis points up to several percentage points, generally occur at the $50,000, $100,000, $250,000 and other high marks, sometimes even reducing front-end fees to zero on share purchases of $1 million or more.
NASD also notes that with the advent of automated processing and settlement systems, it is "essential" for brokers to program such systems to automatically recognize breakpoints.
The self-regulatory agency maintains correct billing is the responsibility of the brokerage community, not mutual funds: "Due to the fact that automated processing and settlement systems, such as Fund/SERV, may not disclose to the mutual fund company the identity of the members customer, members cannot rely on the mutual fund company to allocate the correct breakpoint to a transaction or override the members failure to do so."
"Weve seen enough in the reviews weve done of brokerage firms to know that every firm big, medium and small needs to be focused on this area," Mary Schapiro, NASD vice chairman, told The Wall Street Journal.