The Securities and Exchange Commission (SEC), in conjunction with the National Association of Securities Dealers (NASD), is investigating reports that brokerage firms may have been overcharging mutual fund buyers by failing to provide available discounts to all eligible investors.
Regulators are concentrating their investigation on brokerage firms, not the mutual fund companies, looking at how they handle funds that carry a sales charge. These funds often offer discounts on their fees, based on the amount invested, with different levels or breakpoints for applying lower fees.
The probes are examining whether brokerages that sell these mutual funds are then making the discounts available to investors. If not, regulators say eligible investors who bought shares in these funds through brokerage companies would have been overcharged.
“If it’s a widespread problem, it could be a significant amount of money,” outgoing SEC Chairman Harvey Pitt told reporters. However, he declined to make an estimate as to how much money might be at stake, stating, “we don’t know enough yet.” Changes to simplify fund breakpoints and monitor compliance may be needed in addition to any enforcement actions, Pitt added.