Mutual funds are generally highly diversified investment choices with a relatively high level of safety that are a good option for investors looking to build a solid retirement investment portfolio and maintain a high income level while preserving assets. That being said, some types of mutual funds can put investors at increased levels of risk. A trustworthy mutual fund company or brokerage firm would tell investors this prior to letting them purchase mutual funds, but some do not, leaving investors exposed to excessively high fees.

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How Do Mutual Funds Work?

The majority of Mutual funds are purchased as either a Class A share or a Class B share. The commission for Class A shares is paid when the purchase is made. The brokerage firm also receives its commission up front with Class B mutual funds, however the client pays a back ended surrender fee if the client sells the mutual fund within five or six years instead of a front ended commission. Class B funds charge a higher yearly administrative fee. If a client is making a large dollar mutual fund purchase in the same family of funds, then a Class A is more appropriate and if the brokerage firm has solicited a Class B purchase, this could be defined as mutual fund fraud.

What is Mutual Fund Fraud?

Mutual fund fraud occurs when brokers or investment advisers place their own best interest ahead of their clients, and buy or sell mutual funds for the client without fully disclosing the risks associated with a mutual fund. Brokers may also recommend unsuitable mutual fund investments to clients that are not aligned with the client’s risk tolerance levels and investment goals.

How to Spot Mutual Fund Fraud

Brokers can engage in a variety of activities related to mutual funds so as to generate excessive fees at the expense of the customer. Because mutual funds are generally long-term products, they should not be traded on a short-term basis. When they are, the broker engages in a fraudulent practice known as mutual fund switching which is strictly prohibited. In addition to the mutual fund switching, brokers can engage in other types of misconduct relating to mutual funds. A common abuse, which is difficult for the investor to detect, is the use of Class B shares of the mutual funds. Often the broker’s use of Class B shares (instead of Class A shares), especially when the investment amount is large, enables the brokerage firm and broker to generate a much higher commission at the expense of the investor.

Contact Our Mutual Fund Fraud Attorneys Today

If you have experienced inappropriate investment losses in your account as a result of a stockbroker or brokerage firm recommending an unsuitable mutual fund investment, you need an experienced securities fraud lawyer that will fight to get your money back and help you reach a resolution that is in your best interest. 

Contact Oakes & Fosher today if you feel you have been a victim of mutual fund fraud.

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