FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProcessing Customer Orders and TransactionsMedium
A client has $90,000 invested in a mutual fund family and wishes to purchase an additional $15,000 worth of shares in a different fund within the same family. The fund family's breakpoint schedule is as follows: $0-$99,999 (5.00% sales charge), $100,000-$249,999 (4.00% sales charge). What sales charge will the client pay on the new $15,000 purchase?
- A5.00% on the first $10,000 and 4.00% on the remaining $5,000.
- B4.00% on the $15,000 purchase.
- C5.00% on the $15,000 purchase.
- DA blended rate reflecting the average sales charge across the total investment.
Show answer & explanationAnswer & explanation
Correct answer: B. 4.00% on the $15,000 purchase.
This scenario describes Rights of Accumulation (ROA). The client's existing investment ($90,000) is combined with the new purchase ($15,000) for a total of $105,000. This total crosses the $100,000 breakpoint, so the entire new $15,000 purchase qualifies for the lower 4.00% sales charge.
Why the other options are wrong
- A. This describes a breakpoint applicability but doesn't correctly apply it to the new purchase based on the total. Breakpoints apply to the entire purchase that crosses the threshold.
- C. This is incorrect because the total investment, including the new purchase, qualifies for a breakpoint.
- D. A blended rate is not how breakpoints or rights of accumulation typically function; the lower rate applies to the entire new purchase once the threshold is met.
Rights of Accumulation (ROA)
A privilege that allows mutual fund investors to combine current investments with new purchases to qualify for a lower sales charge breakpoint.
- Applies to investments within the same fund family.
- The lower sales charge applies to new purchases.
- Value of existing holdings and new purchases are aggregated.
Memory trick: ROA: Reach a higher Amount, get a lower Rate.