Rights of Accumulation (ROA): How They Benefit Mutual Fund Investors

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What Are Rights of Accumulation (ROA)?

Rights of accumulation (ROA) allow mutual fund shareholders to receive reduced sales commission charges when their total mutual fund holdings, both new purchases and existing ones, reach specified investment thresholds known as breakpoints. This savings mechanism is crucial for investors seeking to minimize costs while building their mutual fund portfolios. ROA offers a significant advantage by reducing the financial burden of entering and growing a mutual fund portfolio, making it an essential strategy for savvy investors.

How Rights of Accumulation Work in Mutual Funds

Rights of accumulation breakpoints are structured by mutual fund companies to provide commission discounts for investors. Mutual fund companies determine the sales commission fee structures for investment funds. An investor incurs sales charges when they buy shares of a mutual fund with an intermediary for which the sales charges apply. Mutual fund companies may offer ROA breakpoints with their sales commission schedules.

Typically, there is no time limit on how long the mutual fund needs to be held to qualify for rights of accumulation. Not all mutual funds offer ROA breakpoints so investors should be sure to identify them for a mutual fund if they exist. ROA breakpoints typically refer to front-end sales charges and therefore are instituted primarily on fund share classes with a front-end sales charge.

Exploring ROA Breakpoints in Mutual Funds

Breakpoints are set at various levels to offer investors a discount on sales charges when they make larger investments. Breakpoints are determined by the mutual fund and integrated within the fund distribution process. They are typically offered for funds with a front-end sales charge but may be available for other types of sales charges as well.

Mutual funds are required to give a description of breakpoints and eligibility requirements in the fund prospectus. By reaching or surpassing a breakpoint, an investor will face a lower sales charge and save money.  

The Financial Industry Regulatory Authority (FINRA) provides the following guide for mutual fund ROA breakpoints. ROA breakpoints may come into effect when an investor’s holdings reach $25,000.

Investment and Sales Charge:

• Less than $25,000 5.00%
• At least $25,000, but less than $50,000 4.25%
• At least $50,000, but less than $100,000 3.75%
• At least $100,000, but less than $250,000 3.25%
• At least $250,000, but less than $500,000 2.75%
• At least $500,000, but less than $1 million 2.00%
• $1 million or more No sales charge

Rights of accumulation breakpoints can be important for high net worth investors buying shares through a financial intermediary that charges the fund’s front-end sales charge. ROA breakpoints can influence the investor’s long-term investing plans. In this example, the investor would need to invest another $20,000 to reach the next front-end sales breakpoint of 3.75%. If an investor has a $1 million investment or reaches the $1 million ROA breakpoint they typically would not have to pay a front-end sales charge.

Example: Applying Rights of Accumulation in Practice

For example: Suppose an investor would like to buy $5,000 of Fund ABC Class A shares with a front-end sales charge of 5.00% charged by the intermediary. The investment of $5,000 adds to the investor’s existing investment of $25,000 in the fund’s Class A shares already. Fund ABC follows the same ROA breakpoint schedule outlined by FINRA.

With the new investment of $5,000, the investor now has an accumulation of $30,000. Therefore, their additional purchase of $5,000 qualifies for a discounted front-end sales charge of 4.25% versus the standard 5.00%.