The Securities and Exchange Commission asked the nation's 5,500 brokerage firms yesterday for information on how they ensure that mutual fund customers aren't being overcharged.
The electronic questionnaire was sent by NASD, said SEC sources. NASD, formerly the National Association of Securities Dealers, is the brokerage industry's self-regulating body.
Yesterday's request follows a directive the SEC sent in December telling brokers that, even if they've overcharged customers in the past, they should immediately begin charging clients correctly.
At issue is whether mutual fund investors have been given the sales-commission discounts they have been promised when they invest larger amounts of money. For example, an individual who invests $9,999 might be charged a sales commission of 5 percent, but. the commission could drop to 4 percent if he invests $10,000 to $24,999, or 3 percent for investing $25,000 or more.
A preliminary review by regulators last year found that this "break-point" system was riddled with potential problems, including inconsistent or incomplete recordkeeping of the aggregate amounts individual clients invest in particular funds and a hodge-podge tracking system to make sure investors were charged the lowest rates they were entitled to.
Shares of mutual funds are often sold through independent brokers such as Merrill Lynch & Co. or Charles Schwab, as well as through brokerage units owned by mutual funds.
Eighty percent of new mutual fund sales are made through brokers or other financial intermediaries, according to the Investment Company Institute. That means most new money going into mutual funds travels through a system that is poor at tracking who should get discounts, according to the SEC.
As of the end of November, investors had $6.6 trillion invested through mutual funds, according to the institute.
It's unclear how much money hasn't been properly credited to customers, how widespread the problem is, or whether overcharging happened intentionally or merely through sloppy business practices, SEC sources said. But both brokers and mutual funds must bear responsibility, they said.
The agency hopes to get a better idea of how deep the problem is when it analyzes the response to yesterday's survey, which it hopes to have done by the end of February, sources said. The aim of the review is to make sure customers get back any money they are owed and to devise a system that is easier for brokers, funds and investors to track, they said.