This case involved improper marketing of mutual fund investments through an installment method called a systematic investment plan. The systematic plans allowed investors to accumulate mutual-fund shares indirectly by making fixed monthly contributions — typically ranging from $100 to $500 — over a period of at least 15 years.
The plans impose a unique sales charge or load that is equal to 50% of the plan’s first 12 monthly payments with no sales load thereafter. Should the customer make all of the required payments (180) over the 15-year period, the effective sales charge is approximately 3.3%. On the other hand, should the customer fail to make all of the required payments, the effective sales charge may be substantially higher.
Historically, approximately 57% of customers failed to achieve the required 180 payments and, consequently, many of them paid a substantially higher sales charge than is customary for load equity mutual fund investments.