Rights of Accumulation
Rights of Accumulation
A mutual fund privilege allowing investors to combine the current value of existing holdings with new purchases to qualify for breakpoint discounts on sales charges. Applies to the investor and immediate family members (spouse, children under 21), differs from Letter of Intent (which commits to future purchases). Automatic and requires no written commitment.
An investor owns $40,000 of ABC mutual fund (current NAV) and wants to purchase $15,000 more. The fund has breakpoints at $25,000, $50,000, and $100,000. Under rights of accumulation, the $40,000 existing value plus $15,000 new purchase ($55,000 total) qualifies for the $50,000 breakpoint discount on the new shares.
Students often confuse Rights of Accumulation (combining existing holdings with new purchases, no commitment required) with Letter of Intent (committing to future purchases over 13 months to get immediate breakpoint). Also common: not knowing that immediate family members' holdings can be aggregated, or thinking the breakpoint applies to total value instead of just the new purchase.
How This Is Tested
- Calculating combined value of existing holdings plus new purchase to determine applicable breakpoint
- Distinguishing between Rights of Accumulation (existing + new) and Letter of Intent (future commitment)
- Identifying which family members qualify for aggregation under rights of accumulation
- Determining the sales charge on new purchases when rights of accumulation apply
- Understanding that rights of accumulation are automatic and require no written agreement
Regulatory Limits
| Description | Limit | Notes |
|---|---|---|
| Family aggregation (rights of accumulation) | Investor, spouse, children under 21 | Immediate family holdings can be combined to reach breakpoints |
| Valuation for existing holdings | Current NAV (not original purchase price) | Existing holdings valued at current market value, not historical cost |
| Commitment requirement | None (automatic privilege) | Unlike Letter of Intent, no written commitment or future purchase obligation |
Example Exam Questions
Test your understanding with these practice questions. Select an answer to see the explanation.
Sarah owns $35,000 (current value) in XYZ Growth Fund, and her spouse owns $20,000 (current value) in the same fund. Sarah wants to invest an additional $10,000. The fund offers breakpoints at $25,000 (4.75% load), $50,000 (3.75% load), and $100,000 (2.50% load). Under rights of accumulation, what sales charge will apply to Sarah's new $10,000 purchase?
B is correct. Rights of accumulation allow combining holdings of the investor, spouse, and children under 21 to determine applicable breakpoints. Sarah ($35,000) + spouse ($20,000) + new purchase ($10,000) = $65,000 total, which exceeds the $50,000 breakpoint threshold. Therefore, the 3.75% load applies to the new $10,000 purchase.
A is incorrect because it ignores both Sarah's existing holdings and her spouse's holdings when calculating the applicable breakpoint. The breakpoint is based on combined family value, not just the new purchase amount. C is incorrect because spousal holdings CAN be combined under rights of accumulation (along with children under 21). The rule specifically includes immediate family aggregation. D is incorrect because while the total is $65,000, this only qualifies for the $50,000 breakpoint (3.75%), not the $100,000 breakpoint (2.50%).
The Series 65 exam tests your understanding of family aggregation rules under rights of accumulation. Advisors have a fiduciary duty to identify all opportunities to reduce client costs, including properly aggregating immediate family holdings to achieve lower sales charges. Failing to apply available breakpoints can constitute a suitability violation.
What is the primary difference between Rights of Accumulation and a Letter of Intent for achieving mutual fund breakpoint discounts?
A is correct. Rights of accumulation (ROA) allow investors to add the current value of existing fund holdings to new purchases to reach breakpoint thresholds, with no commitment required. Letter of Intent (LOI) commits the investor to purchase a specified dollar amount within 13 months to immediately qualify for the breakpoint discount associated with that commitment level.
B is incorrect because it reverses the documentation requirements. Rights of accumulation are automatic (no written agreement needed), while Letter of Intent requires a written commitment to future purchases. C is incorrect because both mechanisms can include immediate family aggregation (investor, spouse, children under 21). D is incorrect because both mechanisms use the same breakpoint schedule and provide the same discounts; the difference is in how you qualify (existing + new versus future commitment).
The Series 65 exam frequently tests the distinction between these two breakpoint mechanisms. Understanding when to use Rights of Accumulation (client already owns shares) versus Letter of Intent (client plans to invest more over time) is essential for making cost-effective recommendations and properly serving client interests.
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Access Free BetaMarcus purchased $30,000 of a mutual fund 5 years ago, which has grown to a current value of $48,000. He wants to invest an additional $25,000. The fund has breakpoints at $50,000 (4.25% load), $75,000 (3.50% load), and $100,000 (2.75% load). Under rights of accumulation, what is the total sales charge on Marcus's new $25,000 purchase?
B is correct. Calculate the combined value: $48,000 (current NAV of existing holdings) + $25,000 (new purchase) = $73,000 total. This qualifies for the $50,000 breakpoint (3.50% load) but not the $75,000 breakpoint. Sales charge: $25,000 × 0.035 (3.50%) = $875.00. Important: Rights of accumulation uses the current value ($48,000), not the original purchase price ($30,000).
A ($687.50) incorrectly applies the 2.75% load ($25,000 × 0.0275), which requires $100,000 total value. C ($1,062.50) incorrectly applies the 4.25% load ($25,000 × 0.0425), which would apply if the total were below $50,000. D ($1,187.50) incorrectly uses 4.75% (possibly a different breakpoint tier not listed in this problem).
Sales charge calculation questions are common on the Series 65 exam. You must understand that rights of accumulation values existing holdings at current NAV (not original cost basis) and that the breakpoint discount applies to the new purchase amount. Accurate fee calculations are essential for disclosure requirements and client communications.
All of the following statements about Rights of Accumulation are accurate EXCEPT
C is correct (the EXCEPT answer). Rights of accumulation do NOT require any written commitment or holding period. This privilege is automatic and available whenever an investor makes a new purchase. The 13-month written commitment describes a Letter of Intent, not rights of accumulation.
A is accurate: Existing holdings are valued at current market value (NAV), not historical purchase price, which benefits investors whose holdings have appreciated. B is accurate: Immediate family aggregation (investor, spouse, children under 21) is permitted under rights of accumulation to help families reach breakpoint thresholds. D is accurate: When the combined value of existing holdings plus new purchase reaches a breakpoint threshold, the reduced sales charge applies to the new shares being purchased.
The Series 65 exam tests your ability to distinguish rights of accumulation (automatic, no commitment) from Letter of Intent (written commitment, future purchases). Understanding these differences prevents confusing two distinct breakpoint mechanisms and ensures you can properly advise clients on which option best fits their circumstances.
An investor currently owns $45,000 (current NAV) in ABC Fund and wants to purchase an additional $20,000. Her 19-year-old daughter owns $8,000 in the same fund. The fund has a breakpoint at $50,000 (4.00% load) and $75,000 (3.25% load). Which of the following statements are accurate under rights of accumulation?
1. The investor's existing $45,000 can be combined with the new $20,000 purchase to reach the $50,000 breakpoint
2. The daughter's $8,000 holdings can be included to reach the $75,000 breakpoint ($45,000 + $20,000 + $8,000 = $73,000)
3. The investor must sign a Letter of Intent to combine family holdings
4. The 3.25% load will apply to the new $20,000 purchase
A is correct. Only statements 1 and 2 are accurate.
Statement 1 is TRUE: Rights of accumulation automatically allow the investor to combine existing holdings ($45,000) with new purchases ($20,000) to reach the $50,000 breakpoint threshold. No action required beyond making the purchase.
Statement 2 is TRUE: Children under 21 can have their holdings aggregated with parents' holdings under rights of accumulation. The daughter is 19, so her $8,000 can be included. However, the total is $73,000 ($45,000 + $20,000 + $8,000), which exceeds the $50,000 breakpoint but does not reach the $75,000 threshold.
Statement 3 is FALSE: Rights of accumulation are automatic and require no written Letter of Intent. A Letter of Intent is a separate mechanism for committing to future purchases over 13 months.
Statement 4 is FALSE: The total combined value is $73,000, which exceeds the $50,000 breakpoint (qualifying for the 4.00% load) but falls short of the $75,000 breakpoint needed for the 3.25% load. The 4.00% load applies, not 3.25%.
The Series 65 exam tests multi-dimensional understanding of rights of accumulation, including family aggregation rules, automatic application, and precise breakpoint thresholds. Advisors must accurately calculate combined values and identify the correct applicable breakpoint to fulfill their obligation to minimize client costs and ensure proper fee disclosure.
💡 Memory Aid
Think of Rights of Accumulation like "Total Family Bank Balance": You can combine what you already have (existing account value) + what you're adding now (new deposit) + immediate family members' accounts to reach the discount tier. No promises needed - it's automatic. Letter of Intent is different: you're making a future promise to deposit more money.
Related Concepts
This term is part of this cluster:
More in Fund Costs
Where This Appears on the Exam
This term is tested in the following Series 65 exam topics: