Breakpoint
Some funds give the investor
Rights of Accumulation [ROA].
Types of Withdrawal Plans:
1. Fixed Percentage Plan 2. Fixed Number of Shares Plan 3. Fixed Dollar Plan
Fixed Dollar Plan - allows the investor to
liquidate a fixed dollar amount of holdings at specific intervals.
Question: If an investor spreads his mutual fund investments over several different fund families, his/her RR should disclose to the investor that the investor will probably forfeit which of the following privileges? I. sales charge breakpoint II. exchange privileges II. automatic reinvestments of dividends & distributions IV. systematic withdrawal program
Answer: I. sales charge breakpoint Explanation: A sales charge breakpoint is the dollar investment required to qualify for a lower sales charge. A fund family is a mutual fund sponsor offering many funds with different investment objectives. Sales charge breakpoints are typically given for investments within a fund family.
Question: All of the following are eligible for a quantity discount on the purchase of mutual fund shares except: I. a custodian for a minor II. an individual II. an investment club IV. a trustee of a trust
Answer: II. an investment club Explanation: Investment clubs are group of persons pooling money together, and therefore would not qualify for quantity discounts.
Fixed Number of Shares Plan - allows the investor to
liquidate a fixed number of shares at specific intervals
Breakpoint Sales occur when an investor is
NOT properly told about how to achieve the breakpoint discount amount.
In order for an investor to receive a breakpoint. Investor must sign a
Letter of Intent [L.O.I].
A Breakpoint occurs when an investor receives a
reduced sales charge based on a quantity investment.
If you invest enough money at 1 time you are going to pay a lower
sale charge [breakpoint].
If an investor wants to sent a fixed amount a month, the RR must inform them that when they get the fixed amount a month that
that is not all capital gains, dividends & interest, it is also part of the principal investment.
Investment Clubs is a group of individuals
who as individuals would not qualify for a quantity discount. A group of people who pool their money together to qualify for discount.
Letter of Intent [L.O.I] - Types of customers who CAN qualify [eligible with a lump sum purchase or by signing an LOI] for a quantity discount are:
● Individuals ● Married couple with joint tenants ● Corporations ● Pension Funds
Types of Withdrawal Plans: Investors MUST be told that using a withdrawal plan may
deplete the investor's principal.
An escrow account is always going to be established in case the investor
does not invest the amount needed to meet the discount level.
Letter of Intent [L.O.I] - Types of customers who CANNOT qualify [eligible with a lump sum purchase or by signing an LOI] is/are:
● Investment Clubs.
Breakpoints are
good. ● The point at which an investor receives a reduced sales charge based on the quantity purchased.
Fixed Percentage Plan - allows the investor to withdraw
a fixed percentage of holding (i.e. A retired person with a life expectancy of 20 years may choose to take 1/20th of the holdings each year).
Rights of Accumulation [ROA] - permits
a reduced sales charge on new purchase when the TOTAL WORTH [value] of already-held shares plus the ADDITIONAL AMOUNT TO BE INVESTED exceeds the sales charge breakpoint. ● Family accounts can be combined when determining breakpoint discount levels, including UGMAs. ● if the value of the fund shares goes down, the shares cannot be valued lower than the original purchase price when determining ROA.
Breakpoint Sales are
bad. ● Breakpoint sales are prohibited.
Letter of Intent [L.O.I] - allows an investor
● a 13-month period to reach the breakpoint discount amount. ● can be backdated 90 days [to include any investments that were made in the last 90 days] ● Investors must be advised about breakpoint discounts or the broker would be in violation of NASD Rules. *!!! RRs are ultimately responsible for violations
