According to Achievable SIE section 7.3.3, if a fund assesses the highest possible sales charge (8.5% of POP), it must offer extras to investors. One of them being the ability to reinvest dividend and capital gains distributions at NAV without a new sales charge.
Something seems off here. Why wouldn’t a Mutual Fund simply offer 8.49% instead of 8.50%, and then they wouldn’t be required to offer this extra?
I think the wording of the section might be off. Is it trying to say that if a Mutual Fund assesses any sales charges whatsoever (1%, 3%, up to 8.5%), then it must offer the reinvestment privilege?
Hi @Blake_Tromp, Great questions, you’re thinking about this exactly right, and it’s a smart thing to notice!
To clarify:
Why not just charge 8.49% instead of 8.50% to skip the extras?
The 8.5% figure isn’t just an arbitrary cutoff; it’s the maximum sales charge allowed under FINRA rules only if the fund offers certain investor benefits (like dividend and capital gains reinvestment at NAV, breakpoints, and exchange privileges). If a fund doesn’t offer those benefits, the maximum allowed sales charge drops to around 7.25%. So a fund can’t simply “sneak under” at 8.49% and skip the extras; if those features aren’t provided, the regulatory limit itself is lower.
Does any fund with a sales charge have to offer the reinvestment privilege?
No, the reinvestment privilege (and other extras) are only required for funds that charge the maximum 8.5% sales load. Funds with smaller loads (such as 1%, 3%, or 5%) don’t have to offer those benefits, although many still choose to, as it’s a good investor feature.
So, the textbook’s wording is correct; those privileges are required only when the fund charges the full 8.5% maximum sales charge, not for all funds that charge a sales load. Hope this helps!