SIE Ready✨ The big ideas of the SIE · Lesson 5 of 8 · 60 sec
Breakpoints: Bigger Buy, Smaller Load
Invest a little more in a mutual fund's Class A shares and the sales charge can drop. Missing that is a classic violation.
💡 Key idea
Breakpoints lower Class A sales charges; a letter of intent covers 13 months and rights of accumulation count what you already own.
🧠 Why it matters
Class A shares charge a front-end sales charge that gets smaller at set purchase amounts called breakpoints, listed in the prospectus. Two tools help reach them: a letter of intent (a promise to invest a stated amount over 13 months, priced at the lower charge now) and rights of accumulation (existing holdings in the fund family count toward the next breakpoint). Recommending a purchase just under a breakpoint to earn a bigger commission is a prohibited breakpoint sale.
📈 In the real world
A fund family drops its charge at $50,000. Kim already holds $40,000 in its funds and wants to add $12,000. Rights of accumulation count her $40,000, so the new $12,000 gets the reduced charge.
📌 Takeaways
- Class A = front-end load with breakpoints; B = back-end CDSC; C = level load
- Letter of intent: 13 months to complete the stated amount
- Breakpoint sales (keeping a customer just under a breakpoint) are prohibited
📖 Terms in this lesson
LUCKY 13 (letter of intent): A letter of intent gives 13 months to invest the promised amount and keep the reduced sales charge.
✅ Test yourself
How long does a mutual fund letter of intent give an investor to complete the stated purchase amount?
- 13 months
- 6 months
- 12 months
- 24 months
Answer: A · 13 months
A letter of intent covers 13 months. If the investor falls short, the fund adjusts to the higher sales charge that actually applies. Six, 12 and 24 months are not the standard period.
Which feature lets an investor count shares already owned in a fund family toward a breakpoint?
- A 12b-1 plan
- Rights of accumulation
- Forward pricing
- A contingent deferred charge
Answer: B · Rights of accumulation
Rights of accumulation add existing holdings to new purchases for breakpoint purposes. A 12b-1 plan is an ongoing fee, forward pricing sets the trade price, and a CDSC is a back-end charge.
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