Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, January 14, 1994 TAG: 9401140139
SECTION: BUSINESS PAGE: A-5 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
Fewer than one in five customers are aware that mutual funds and annuities available at banks and other financial institutions are not backed by the Federal Deposit Insurance Corp., according to a survey the groups released.
"When the next market correction takes place, millions of U.S. consumers could learn the hard way that there is no safety net for mutual funds and stocks sold at banks," said Craig Goettsch, president of the North American Securities Administrators Association and Iowa's Superintendent of Securities.
"What we see in these numbers is a distressing pattern of confusion and false comfort on the part of bank customers, a very substantial portion of whom do not seem to grasp that banks are no longer just in the business of selling FDIC-insured products," he said.
The American Association of Retired Persons and the Consumer Federation of America joined the securities administrators in urging Congress to address consumer problems associated with the increasing availability of uninsured investment products at banks.
"The Congress must take responsibility and move on a fast track to pass safeguards that will ensure that there can be no commingling - in practice or perception - of insured and uninsured activities of banks and thrifts," said Chris Lewis, CFA director of banking policy.
However, banking trade associations said legislation is unnecessary, since they are preparing voluntary guidelines to be announced Feb. 1.
"Our guidelines go much further than simply addressing the fact that mutual funds are not insured," said Donald G. Ogilvie, executive vice president of the American Bankers Association.
"They will define, among other things, the appropriate setting and circumstances for bank sales of uninsured products; the need to guarantee the suitability of any such sales; the extent to which certain employees may become involved in these transactions, and acceptable employee qualifications and training," he added.
The groups said Congress must require the use of risk disclosures written in concise and simple English and proven to work. These would include documents and lobby posters.
According to the survey, most buyers of investments sold at banks said their bank provided disclosure documents. But, the poll found, only 25 percent of customers at banks where stocks are sold knew the products were uninsured.
The groups said the legislation also must:
Prohibit naming or advertising uninsured bank products in ways that would confuse them with insured bank products or the institution itself, such as use of the same name and logo.
Require the same government oversight for investment products as is required for other banking operations.
Prohibit banks from selling insured and uninsured products from the same desk, window or lobby area.
by CNB