Breakpoints

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Nov 25, 2007 9:03 pm

I have a client who has been making monthly contributions into a nq account for about 5 years now.  She is at the 250K break with American.  After leaving my previous b/d we acat(ed) the money to my new b/d, but her monthly contribution hit the old account 2 days later due to timing.  Problem is, old b/d invested for her at 5.75%  Now I had heard reps give newbs the old pitch "move the $ to us and we can get you a better breakpoint" (leave it where it is and we can't was not only implied, but told to us by a veteran broker), but I always laughed when I heard this since bp's are simply tied to SS# and not account.  So how does this firm get away with this policy in general?

Nov 25, 2007 11:50 pm

They don't get caught.

Nov 26, 2007 1:50 am

There were a bunch of firms in 2002/03 that got busted for not catching this stuff & had to go through EVERY mf transaction to find out if they had given the client the right breakpoint & offer them the correct cost if they didn't. If FINRA finds a firm doesn't have the right procedures in place to monitor this, they'll be in a bunch of trouble & so may reps if they intentionally mislead clients. A lot of mutual fund companies have changed their polcies in the wake of that so that breakpoints can only be achieved if the $$ are held at the same firm.

Nov 26, 2007 1:04 pm
Ashland:

A lot of mutual fund companies have changed their polcies in the wake of that so that breakpoints can only be achieved if the $$ are held at the same firm.

I didn't know that...which companies have you seen do this?  Have the big boys like American and Franklin adopted such a policy?  If so, I've heard nothing about it and that would seem to be newsworthy...
Nov 26, 2007 2:46 pm
Ashland:

A lot of mutual fund companies have changed their polcies in the wake of that so that breakpoints can only be achieved if the $$ are held at the same firm.

 
Name One....
Nov 26, 2007 8:31 pm

I assumed, and still do that breakpoints are not specific to which company "holds" your investments, but were based on the household assets, even if spread around in 10 different brokerage accounts.  Isn't this all part of "know your client."

Nov 26, 2007 10:28 pm

Most major MFD companies (in fact, all that I am aware of) require breakpoints based on ALL assets, regardless of where held (company retirement plan assets are the exception).

Nov 26, 2007 10:35 pm

The MF has no idea how much you own with them if they are networked at a BD...it is the Brokers responsibility as part of know your client to determine this info. The only way the MF company knows is if teh funds are held at the mf company..

Nov 27, 2007 1:31 pm
apex01:
Ashland:

A lot of mutual fund companies have changed their polcies in the wake of that so that breakpoints can only be achieved if the $$ are held at the same firm.

 
Name One....
 
Franklin Templeton. 
 
See page 57, paragraph (ii) of the Franklin Templeton Fund Allocator Series Prospectus (the one for Founding Funds).
 
I don't know of any other company that has this restriction, although I could be wrong.  I do know that as of about a year ago, American Funds did NOT have this in place, because I used assets held by another broker to reach a breakpoint.
Nov 27, 2007 2:12 pm

That's interesting.  Perhaps it just slipped through, but I know for a fact that I used FT shares held elsewhere to qualify for a breakpoint in 2007.

 
Thanks for the heads up...I sure didn't notice the change and FT sure didn't make it obvious to me.  Then again, I don't read half the stuff mutual fund companies send me...if I did, I wouldn't get anything else done.
Nov 27, 2007 3:51 pm
My impression is that whatever breakpoint you ask for the fund companies will give you, because everyone is paranoid about overcharging.  Same with brokerage accounts, at least with my firm.
 
By the way, the only reason I knew about FT's unusual breakpoint policy is that someone else told me about it a few years ago.  I have used it a couple of times to transfer in funds from other brokers, the client will consolidate with me to save on breakpoints.  Although you do need to be careful that the client doesn't instead take your advice and walk over to your competition with a check to invest.
Dec 2, 2007 11:33 am
theironhorse:

I have a client who has been making monthly contributions into a nq account for about 5 years now.  She is at the 250K break with American.  After leaving my previous b/d we acat(ed) the money to my new b/d, but her monthly contribution hit the old account 2 days later due to timing.  Problem is, old b/d invested for her at 5.75%  Now I had heard reps give newbs the old pitch "move the $ to us and we can get you a better breakpoint" (leave it where it is and we can't was not only implied, but told to us by a veteran broker), but I always laughed when I heard this since bp's are simply tied to SS# and not account.  So how does this firm get away with this policy in general?

 
You should turn this around against the other broker - Not only is the client still eligible for the breakpoint (and it can and should be done at your former bd as a trade correction - no questions asked) , and you know the other broker knows about the assets that acated out, but, it is the other broker's obligation to find out about other assets in order to determine if client is eligible for breaks. 
Why would your cleint want to work with someone who didn't make an attempt at such discovery?
Dec 2, 2007 1:01 pm

NOFX-I would in a heartbeat if I hadn't moved all the $ over.  I know the other guy very well, and he did not meet with the clients because he KNEW they would be moving over asap.  It wasn't something he did per se, it was the back office, so I do not blame him.  It was an auto purchase, not an order he placed.

Dec 3, 2007 7:25 pm
theironhorse:

NOFX-I would in a heartbeat if I hadn't moved all the $ over.  I know the other guy very well, and he did not meet with the clients because he KNEW they would be moving over asap.  It wasn't something he did per se, it was the back office, so I do not blame him.  It was an auto purchase, not an order he placed.

 
If you really NEED to get it corrected, call the back office.  Either that or just accept it, make it right going forward at your new bd and give the guy some discounts on future business.