Compensation in Connection with Investment Company Shares
Chapters in this video
- 0:00 The cautionary tale of Aaron the agent
- 1:06 Sales charges, fees, and the 0.25% no-load rule
- 2:49 Breakpoints, LOIs, and rights of accumulation
- 4:57 The breakpoint selling vs. nondisclosure distinction
- 5:35 Share class suitability and the holding period trap
- 7:03 Unjustified fund switching and duplicate portfolios
- 8:42 Rapid-fire exam survival checklist
What this video covers
- The three sales charges that must be disclosed to a customer: front-end load, contingent deferred sales charge (CDSC), and ongoing asset-based distribution fees
- The 0.25% hard limit that disqualifies a mutual fund from being labeled "no load" or "no sales charge"
- How breakpoint discounts, letters of intent (LOI), and rights of accumulation reduce front-end loads, and why failing to disclose them is a dishonest practice
- The critical exam distinction between simply failing to disclose an available breakpoint and the more deliberate violation of breakpoint selling
- How share class suitability is evaluated, and why customer holding period feeds into the fee comparison rather than standing as a separate fourth factor
- Why unjustified fund switching is essentially mutual fund churning, and why customer consent does not cure an unsuitable switch
- How recommending duplicative portfolios with identical investment objectives also violates suitability obligations
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