Loaded mutual funds charge investors sales fees that compensate the broker
for his/her services when accounts are open or closed. These fees often
benefit the broker more than the investor.
Loaded Mutual Funds
Certain mutual funds often have sales charges, referred to as loads, which
compensate the broker for his/her investment services. Sales loads are
typically applied to the front end or back end of mutual funds. Mutual
funds with front-end loads assess sales charges to the investor when the
fund is opened, while mutual funds with back-end loads assess sales charges
when the fund is closed. On funds with back-end loads, sales charges are
higher if the fund is closed in the first year, then decline each year
thereafter. Once the fund is held for five years, back-end load charges
Loaded mutual funds are typically a more expensive investment. Investing in a $10,000 front-end
loaded fund with a 5% front-end load will cost $500 just to enter the
fund. Back-end loaded funds can also be expensive, since they are often
held for up to five years. Although there are no-load funds that offer
good returns, many brokers convince their clients that loaded mutual funds
are their best option. A securities fraud attorney often sees cases where
brokers overcharge clients by suggesting loaded funds with sales charges, even though no-load funds
provide significant returns to the investor.
Mutual Fund Discounts
Mutual funds with front-end loads, referred to as Class A shares, often
have breakpoint discounts that reduce the front-end sales charge. The
amount of the discount is based on the size of the investment, and the
discount increases as the investment increases. The investment levels
at which the discounts become available are called breakpoints. Breakpoint
discounts are not offered on mutual funds with back-end loads or on no-load funds.
Breakpoint discounts usually start at investment levels of $50,000, but
they may begin with investments of $25,000 in certain funds. According
to the Financial Industry Regulatory Authority (FINRA), investors with
such investments in mutual funds with front-end loads are entitled to
breakpoint discounts. FINRA requires securities firms to refund money
to investors who don't receive discounts. When securities firms and
brokers deliberately withhold discounts, clients may file
investment claims for damages with a securities fraud attorney. According to FINRA and the
Securities Exchange Commission, one out of every five investors do not
receive breakpoint discounts that they are entitled to from their brokers.
Loaded mutual funds decrease investment returns. For help with securities
fraud and claims,
contact Meyer Wilson at 888-390-6491 for a free consultation.