FINRA Series 7Investment Information and Suitable RecommendationsMedium
A client signs a letter of intent (LOI) to invest $50,000 in Class A mutual fund shares to qualify for a reduced sales charge breakpoint but initially invests only $48,000. Under FINRA rules, within what time frame must the client invest the remaining $2,000 to receive the breakpoint discount?
- A90 days
- B24 months
- C13 months
- D6 months
Show answer & explanationAnswer & explanation
Correct answer: C. 13 months
A letter of intent allows an investor up to 13 months to complete the total dollar amount needed to reach a sales charge breakpoint, and it can even be backdated up to 90 days to include a recent prior purchase. If the additional investment is not made within 13 months, the fund adjusts the sales charge retroactively.
Why the other options are wrong
- A. Incorrect — 90 days refers to the backdating provision, not the total LOI period.
- B. Incorrect — 24 months exceeds the allowed LOI period.
- D. Incorrect — six months is not the standard LOI period.
Letter of Intent (Breakpoint)
A written statement allowing a mutual fund investor 13 months to invest enough to reach a sales charge breakpoint, retroactively reducing the sales charge on all purchases within that period.
- 13-month window to complete the intended investment
- Can be backdated up to 90 days
- If unmet, fund holds escrowed shares to cover the higher sales charge
Memory trick: Letter of intent = 13 months to lower your load.