WASHINGTON - Large-scale investors in mutual funds could get tens of millions of dollars in refunds from brokers who failed to give them the discounts on commissions that they were owed.
The National Association of Securities Dealers, the brokerage industry's self-policing body, said that failure to give the appropriate discounts was widespread - though apparently inadvertent in most cases - and ordered brokerage firms to pay refunds plus interest to the affected investors.
The NASD issued the order in a notice to its member companies regarding the so-called "breakpoint" discounts that was posted Tuesday on its Web site.
In addition to compensating investors, the NASD has said that brokerage firms may be disciplined in cases where they fail to remedy problems or brokers' conduct was seriously harmful.
NASD rules require the breakpoint discounts to go to investors in mutual funds with upfront sales charges when they invest at high levels, typically $50,000, $100,000, $250,000, $500,000 and $1-million. Less than 7 percent of all mutual fund sales last year involved upfront sales charges.
The NASD said in the notice that an examination of fund sales by it, the Securities and Exchange Commission and the New York Stock Exchange found that most brokerage firms "did not uniformly deliver appropriate breakpoint discounts."
The regulators said in March that brokers did not give investors the required discounts in nearly a third of transactions, and that the discounts not provided averaged $364 per transaction.
Most failures to provide the discounts did not appear to be intentional, according to the NASD. Brokers, for example, frequently neglected to add together different mutual funds in the same group of funds owned by the same customer to reach the breakpoint amount, the regulators said.
The problems arose less frequently in brokerage firms that process fund transactions using paper documents as opposed to electronic processing, the examination found.
Investors who believe they have not received breakpoint discounts to which they are entitled should first contact their brokers and ask for the discounts, the NASD says. If a broker does not remedy the problem or provide a satisfactory explanation, the investor should write a letter to the brokerage firm's compliance department and ask for a written response.
SEC Chairman William Donaldson said recently that mutual fund companies should be required to make fuller disclosures to investors of fees, which are too complicated for many consumers to understand. Investors also should be told if their brokers have been given special inducements to sell particular mutual funds, he said.
