Series 65: Prohibited Mutual Fund Practices

Prohibited Mutual Fund Practices

Breakpoint sales. Because breakpoints can be confusing to investors, registered representatives should help their clients understand and take advantage of breakpoints. If the investor is a few dollars shy of a breakpoint, the representative should advise the investor of this, even if it means the commission is reduced. When a rep fails to do this and sells a mutual fund to a client in an amount just under the breakpoint, the result is a breakpoint sale. Breakpoint sales are prohibited by FINRA.

Selling dividends. FINRA prohibits the practice of selling dividends. Selling dividends is when a registered representative encourages a customer to buy shares of a mutual fund right before the mutual fund pays a dividend. This practice is prohibited, because on the ex-dividend date, the net asset value of the mutual fund is adjusted downward to reflect the dividend, so the customer would receive no net benefit from buying the shares right