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Breakpoint and Breakpoint Sales

When investors purchase shares of a mutual fund they may be required to pay a sales charge.  Some mutual funds will reduce the sales charge for larger investments.  For example, a fund may charge a 5% sales charge for investments up to $25,000, but reduce that to 4% for investments between $25,000 and $50,000 and 3% for investments exceeding $50,000.  The purchase price required to receive the reduced sales charge is called a breakpoint; here, for example, the breakpoints are at $25,000 and $50,000.  Breakpoints are provided in a breakpoint schedule found in the mutual fund’s prospectus.

Mutual funds offer additional ways for investors to receive breakpoints such as a letter of intent or rights of accumulation.

A breakpoint sales violation occurs when a registered rep sells mutual fund shares to a customer in an amount just below the level at which the investor would qualify for the reduced sales change.  An example of a breakpoint sales violation might occur, if a registered rep suggested that a customer purchase $24,500 worth of shares – paying a 5% sales charge on the entire purchase ($1,225 in sales charges) – instead of investing an additional $500 to purchase $25,000 and paying only a 4% sales charge ($1,000 in sales charges).

Registered reps must know the ways they can achieve lower costs for their clients, and the rules surrounding these features.

Relevant Exams:
Series 7, Series 24, Series 63, Series 65, Series 66

Dave's mission (and job: Managing Director of Course Design) is to make FINRA exam training engaging, approachable, and dare he even say, enjoyable. Having trained and coached over ten thousand students to exam success he knows how to present complex subjects in memorable and understandable ways. Prior to joining Knopman Marks in 2011, Dave practiced bankruptcy law at Weil, Gotshal & Manages and served as a law clerk in a the Southern District of New York Bankruptcy Court working on the General Motors and Lehman Brothers bankruptcies. Building on his legal expertise and training allows him to keep all our courses updated with the latest legislative and rule-making changes. Dave currently trains for the Securities Industry Essentials (SIE) exam and the Top-Off Series 6, 7, 24, 57, 63, 65, 66, 79, 86, 87, and 99 exams. He also delivers executive one-on-one training and shares his passion for learning outside of work as a ski instructor and yoga teacher. Dave graduated magna cum laude from Fordham Law School, and cum laude with a BA from the University of Pennsylvania.