According to FINRA, Todd Ray Anderson was fined $5,000, suspended for 45 days, and ordered to pay $20,867 in restitution to a customer for recommending that a senior customer purchase over $1 million in mutual funds across 31 fund families without considering the availability of fee discounts.

In making recommendations to the customer, Anderson failed to consider that the customer could have received fee discounts by reaching higher breakpoint levels, including through rights of accumulation, had the customer purchased funds in fewer fund families. Mutual fund families offer reduced sales charges when investors reach certain dollar thresholds, known as breakpoints. Rights of accumulation allow investors to combine their total holdings within a fund family to reach higher breakpoint levels and qualify for lower sales charges.

Anderson's recommendation that the customer invest in multiple fund families, without regard for available rights of accumulation and breakpoint discounts, caused the customer to incur $20,867 in unnecessary sales charges. By spreading the investments across 31 different fund families, each individual investment was smaller and did not qualify for the volume discounts that would have been available through consolidated purchases.

This case illustrates a suitability violation that harms customers while benefiting the registered representative through higher commissions. While diversification across fund families can sometimes be appropriate, in this case the excessive fragmentation served primarily to generate higher sales charges rather than serve the customer's investment interests. The customer was a senior investor, which should have heightened Anderson's obligation to ensure recommendations served the customer's best interests.

Investors should be aware of breakpoint discounts and rights of accumulation when making mutual fund investments, and should question recommendations that fragment investments across numerous fund families unnecessarily.