3.1.5 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 representative will receive a lower commission. When a rep fails to do this and sells a mutual fund to a client in an amount just under the breakpoint, it is called a breakpoint sale. Breakpoint sales are prohibited by FINRA.
Selling dividends. FINRA prohibits the practice of selling dividends. Selling dividends occurs 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 (one business day before the date a person must own the shares to receive a dividend), the net asset value of the mutual fund is adjusted downward to reflect the dividend. Thi