A shares @ NAV w/ LOI

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Apr 27, 2007 6:23 pm

What is your experience on getting  a charge back when you buy As @ NAV but dont hit the $1mm w/ in 12 mos.?  Has anyone here actually been charged back?


If  I buy $700k @ NAV and the client doesn't come up with the other $300 in the next 13 months... a) will they really charge the client back  b) If they do, do I get paid ?


I've had it happen a few times over the years and not got charged but I was wondering what people were experiencing recently.


Thanks.


Apr 27, 2007 6:42 pm
NOFX:

What is your experience on getting  a charge back when you buy As @ NAV but dont hit the $1mm w/ in 12 mos.?  Has anyone here actually been charged back?


If  I buy $700k @ NAV and the client doesn't come up with the other $300 in the next 13 months... a) will they really charge the client back  b) If they do, do I get paid ?


I've had it happen a few times over the years and not got charged but I was wondering what people were experiencing recently.


Thanks.




Ask the fund company. They might know.

Apr 27, 2007 6:49 pm

I've done it (not at $1mm breakpoint, but other breakpoints) and the client got charged back (and I got paid).

Apr 27, 2007 6:54 pm
Bobby Hull:
NOFX:

What is your experience on getting  a charge back when you buy As @ NAV but dont hit the $1mm w/ in 12 mos.?  Has anyone here actually been charged back?


If  I buy $700k @ NAV and the client doesn't come up with the other $300 in the next 13 months... a) will they really charge the client back  b) If they do, do I get paid ?


I've had it happen a few times over the years and not got charged but I was wondering what people were experiencing recently.


Thanks.




Ask the fund company. They might know.

Apr 27, 2007 8:53 pm

The client's share level will be adjusted to the level they would have had at the lower BP. I guarantee you that if this happens it will cost you the relationship. Clients do not understand how this works. I'm speaking from experience.


Best thing you can do is get out in front of this now and explain to the client what will happen if they don't add the needed dough. Don't wait to see if it slips by the MF company.

Apr 27, 2007 9:20 pm

My clients have been charged and I've gotten paid.


I just had an  interesting thing happen.  I have a client who has about $490,000 invested in "A" shares with a specific fund company.  He's also investing about $1,000/month.  My B/D flagged the account and my compliance dept said that I should offer the $500,000 breakpoint.


I said "no way".  The last thing that I would want to have happen is the client to get dinged for that commission if the market goes down and the account doesn't hit $500,000.  It obviously could only help the client to sign the LOI, but the bad feelings if they got dinged could definitely hurt a relationship.

Apr 28, 2007 2:40 pm

Good point, but I think you get a sort of "step up" for breakpoint

purposes in the event of a loss of principle. I may be wrong, but I think I

remember hearing that somewhere along the way. In other words, you

are credited for what you put in, even if it loses value. But I think you

have to submit for it (as the firm first only looks at current value in

account).

Apr 28, 2007 2:54 pm

Broker24, I do believe that you are correct, but in this case the client will not have put in $500,000 and the account might not equal $500,000 either.  In other words, even if the account drops in value, there is still a huge gain in value and not an overall drop.

Apr 28, 2007 4:17 pm
Broker24:

Good point, but I think you get a sort of "step up" for breakpoint

purposes in the event of a loss of principle. I may be wrong, but I think I

remember hearing that somewhere along the way. In other words, you

are credited for what you put in, even if it loses value. But I think you

have to submit for it (as the firm first only looks at current value in

account).



I think that is correct...if you submit an LOI for the 500k breakpoint and you put in the additional required funds over the next 13 months you get the breakpoint even if market fluctuations cause the account value to go down.

Of course, the best way to be sure is to call your internal wholesale and ask, or read the prospectus, not post the question here and rely exclusively on our answers.