Check out the NASD site at http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_005975
for info on how selling higher cost DSC shares is considered a breach of fiduciary responsibility by a trusted professional. (National Association of Securities Dealers, United States)
In August 2002, NASD affirmed a hearing panel decision that a broker made unsuitable recommendations to a customer. The broker had sold $2.1 million in Class B shares in two mutual fund families to a customer. The amount invested in one fund family was enough to entitle the customer to obtain Class A shares with no front-end load. The amount invested in the second fund family would have entitled the customer to obtain the largest breakpoint discount on Class A shares. NASD's National Adjudicatory Council held that a broker's suitability obligation includes the requirement to minimize the sales charges paid for mutual fund shares, when consistent with the customer's investment objectives. The broker's recommendation was unsuitable because the customer's purchase of Class B rather than Class A shares resulted in significantly higher commission costs, including the payment of contingent deferred sales charges upon sale of the shares. The broker was fined $40,000, suspended in all capacities for one year, and ordered to pay restitution of $55,567, plus interest, to the customer's estate. See Department of Enforcement v. Wendell D. Belden (PDF 40 KB).
In April 2001, NASD censured and fined a brokerage firm, suspended a broker and his supervisor, and directed that restitution be paid to its customers for, among other things, recommending that each of 15 customers purchase over $250,000 in Class B shares when it would have been more cost-effective for those customers to purchase Class A shares. NASD found the purchases were unsuitable in light of the amount sold, the sales and distribution charges incurred, and because the customers could have purchased the Class A shares with much lower sales charges and brokerage firm commissions. The same firm also recommended to 29 customers that they liquidate another mutual fund and purchase over $500,000 of Class B shares, when Class A shares would have been the more cost-effective purchase at the time because a temporary marketing promotion offered by the fund eliminated the sales load. See NASD Regulation Censures and Fines Stifel, Nicolaus & Company, and Two Individuals for the Unsuitable Sale of Class B Mutual Funds.
This kind of behavior, unfortunately is considered "standard industry practice" for the time being in many offices in Canada.
