Systematic Investment Plans
Many cautions surround these specialized investments, which are sold almost exclusively to members of the armed services.
Investing money each month is a great way to build a nest egg—but not all monthly investment programs are created equal. For a specific type of systematic investment plan—sometimes referred to as a "contractual plan" or "periodic payment plan"—an investor must make a long-term commitment of 10 or 15 years. While the majority of these plans have been sold to military personnel, they are also sold to civilians. These plans come with high upfront costs and are expensive if the full term of payment is not completed. We issued this Alert to inform investors, especially those serving in our armed forces, of the costs and risks involved in such plans. The Alert was issued in conjunction with an NASD Enforcement Action, in which sanctions were levied against a brokerage firm selling these plans to military personnel.
NASD Fines Two Fidelity Brokerage Firms for Distributing Misleading Sales Literature About Systematic Investment Plans Sold to Military Personnel
NASD fined two Fidelity broker-dealers $400,000 for preparing and distributing misleading sales literature promoting Fidelity's Destiny I and II Systematic Investment Plans, which were sold primarily to U.S. military personnel. As part of the settlement, for the next five years, the two broker-dealers—Fidelity Investments Institutional Services Company, Inc. of Smithfield, RI and Fidelity Distributors Corporation of Boston—are required to notify Destiny Plan holders who want to increase their investments in existing Destiny Plans that additional shares of the underlying fund can be purchased outside the Destiny Plans without paying the additional creation and sales charges of up to 50 percent on the first year's payments.
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Periodic payment plans allow investors to accumulate shares of a mutual fund indirectly by contributing a fixed, often small amount of money on a regular basis. Many of these plans are sold to military personnel. This SEC brochure explains this kind of investment, describes the costs involved with these plans, and highlights the questions every investor should ask before investing.