Breakpoints: The need for education and technology

The securities industry is no stranger to regulatory compliance. However, the breakpoints issue is emerging as one of its latest challenges. Education and technology are an important part of the solution. A breakpoint is the level or volume of investment at which up‐front commissions on mutual‐fund shares are reduced. Simply put, an investor is rewarded with a monetary discount when he or she purchases a certain amount of funds. The extent of the discount is based on the size of the investment in the mutual fund. Presumably, this is how breakpoints are intended to work. However, the changing landscape of the brokerage industry and its interaction with mutual fund companies has caused many of the tracking mechanisms traditionally used by fund companies to be lost. Along with this, the assurance that customers are receiving correct discounts has disappeared.