A Breakpoint Sale is the practice of selling mutual fund shares in dollar amounts that are just below the point where an investor would be entitled to a sale charge reduction. A breakpoint sale is designed for the purpose of trying to earn a larger commission. This is a violation of the Rules of Fair Practice and should never take place..
SecuritiesCE Explains Breakpoint Sale
Lets look at an example of a brekpoint sale violation you will most likely need to know to pass your exam.
A customer wishes to invest the $27,000 he has just received from the sale of his boat in a mutual fund his rep had mentioned to him. The mutual fund charges 8.5% as an initial sales change, but offers a breakpoint of 7% at the $30,000 level. The registered rep is required to inform the customer that the breapoint is only a few thousand dollars away. Instead of making the information regarding the breakpoint available to the investor, the rep suggests the customer simply send in the check and he will see that the purchase is made promptly. The customer ends up paying the higher sales charge of 8.5% and the rep will make a larger commission than if the customer had invested the full $30,000. Failing to mention that a reduced sales charge is available for an investor is an abusive sales practice and is a violation of FINRA ruels. Even if the investor was unable to invest the additional $3,000, he could have signed a letter of intent to contribute the additional funds. The letter of intent would give the investor 13 months to contribute the additional funds. Be sure you can identify breakpoint sales violations and have mastered the application of breakpoint schedules for your exam. Be confirndent that you will pass your exam with our greenlight money back pass guarantee.
Good Luck on Your Exam!
The Securities Institute of America, Inc.