SEC Moving Toward Greater Fund Fee Disclosure

December 17, 2003 (PLANSPONSOR.com) - To help mutual fund shareholders understand how to get "breakpoint" discounts, federal officials have proposed forcing fund companies to more clearly explain their fee discounting policies for those acquiring a large number of shares.

>As part of its broad-based fund industry reform effort, the US Securities and Exchange Commission (SEC) unanimously approved the breakpoint clarification proposal as well as a call for public comment on forcing funds to more explicitly state their transaction costs, Reuters reported. The breakpoint proposal will come before the SEC again for a final vote.

“We are moving to improve the transparency of fees for all mutual fund investors,” said Chairman William Donaldson.

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The breakpoint disclosure rule was prompted by an SEC investigation this year, which found that almost a third of investors of the thousands of deals studied missed out on discounts they deserved buying large blocks of front-end loaded funds with a purchase fee (See Report: Lost Breakpoint Discount Averaged $364 ). Regulators examined more than 9,000 transactions and found that discounts were called for in 5,515. But they weren’t forthcoming in 1,757 cases. Discounts denied totaled $637,000, the SEC said.

The breakpoints inquiry focused on only 43 of the roughly 2,000 brokerages that sell front-loaded mutual funds.

Breakpoints are money amounts at which fund share purchases get to be big enough to qualify for a fee break. Discounts are commonly offered on a graduated basis to investors making large purchases of front-loaded funds.

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