Compensation in Connection with Investment Company Shares
Chapters in this video
- 0:00 Sales loads and fees: the disclosure mandate
- 1:52 Breakpoints and letters of intent: volume discounts
- 3:01 The breakpoint selling trap: always a violation
- 4:38 Share class suitability: matching fees to time horizon
- 5:51 The fund switching violation: consent does not cure
- 7:13 Rapid-fire exam recap
What this video covers
- Why a broker-dealer must adequately disclose front-end loads, contingent deferred sales charges (CDSC), and 12b-1 fees before a customer purchases mutual fund shares
- What breakpoints are: dollar thresholds where front-end sales charge percentages drop, and why failing to disclose them is a dishonest practice
- How a letter of intent (LOI) lets a customer commit to future purchases over 13 months to qualify for breakpoint discounts today
- Why breakpoint selling: deliberately structuring a purchase just below a threshold to preserve a higher commission, is always a violation regardless of customer awareness
- What reasonable grounds for share class suitability requires: investment objectives, other holdings, and transaction fee comparison across Class A, B, and C shares
- Why recommending a higher-cost share class without documented suitability basis is a dishonest practice
- Why mutual fund switching between substantially similar funds to generate new sales charges is a violation even when the customer fully consents
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