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Investors to Get Refunds on Excessive Broker Fees

August 28, 2003|From Bloomberg News

Some mutual fund investors may have refunds coming their way.

The NASD, the brokerage industry's self-regulatory agency, has ordered brokers to pay refunds to investors who didn't receive certain discounts on mutual fund commissions.

The NASD, formerly the National Assn. of Securities Dealers, said a review of broker sales practices in recent years found many of its members failed to provide discounts to investors who should have received them based on the number of fund shares bought.

The agency is getting tough on its members amid investigations by state and federal lawmakers into whether brokers sold in-house funds instead of competitors' to boost commission income. Congress also is reviewing fund fees and sales practices.

In March, the NASD asked member firms to conduct a self-assessment of their record in providing commission reductions at certain so-called breakpoints, or sales levels. A preliminary analysis showed that brokers did "not uniformly deliver appropriate breakpoint discounts," the agency said.

Fund investors are entitled to pay a reduced commission when they buy a large number of shares in funds that carry an upfront sales charge. Discounts can start on purchases of at least $25,000, according to a study by the Securities and Exchange Commission, the New York Stock Exchange and the NASD.

The study found that the average investor failed to receive a $364 discount per transaction.

About 93 million shareholders hold more than $6 trillion in mutual fund assets, according to the regulatory study, and 37% of shareholders buy funds through a broker-dealer who charges a commission.

The brokers reviewed by the NASD did not purposely deceive investors but failed to provide discounts because of "operational problems," NASD Executive Vice President Marc Menchel said. "If we thought it was an effort to defraud, we would have handled it differently," he added.

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