ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, May 15, 1996 TAG: 9605150005
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: ASSOCIATED PRESS
More than one out of four banks falls short when it comes to warning customers about the risks of buying mutual funds and other investments, according to a survey released Monday by the Federal Deposit Insurance Corp.
The report on the yearlong survey on the sale of investments by banks said that 28 percent of the customers were not told that mutual funds aren't protected by federal deposit insurance. Such coverage protects savings accounts and certificates of deposit up to $100,000 if the bank fails.
In 30 percent of the cases, banks did not tell customers that stocks, mutual funds and other investments aren't obligations of the bank.
The survey found the problems were greatest when investors talked with bankers over the telephone. It said only 46 percent of customers were told on the phone that Wall Street investments lacked FDIC deposit insurance.
``These results need to be improved,'' FDIC Chairman Ricki Helfer said.
The survey is the latest criticism of bank shortcomings in the sale of Wall Street investment products, which are a major area of growth for banks. In 1994, banks sold about $317 billion worth of mutual funds, or about 15 percent of the industry's total.
Mary Griffin, a financial services expert at Consumers Union, said the FDIC's survey is especially disappointing because regulators put out guidelines two years ago on how banks can better inform customers about risks of buying mutual funds or other noninsured investments.
``Obviously, they're not getting their act together,'' Griffin said, adding that the survey shows the need for stronger regulations.
Sarah A. Miller, senior government relations counsel at the American Bankers Association, took issue with the study's design. She said the mere mention of mutual funds in a telephone call was considered a sales presentation, which requires a host of warnings. Despite this flaw, Miller conceded the broader point.
``I do agree that we have to do a better job,'' Miller said. ``We are continuing to do more in that effort'' by improving training of bankers' oral sales pitches.
The survey, conducted by Market Trends Inc. of Bellevue, Wash., involved trained interviewers who posed as shoppers who contacted more than 1,000 banks in person or over the telephone on 7,800 occasions. The FDIC also analyzed the survey's findings.
A separate study released in January by Prophet Market Research of San Francisco, which examined brokers at 50 large banks, found one in four brokers weren't telling customers the investments lacked FDIC insurance, or otherwise failed to follow bank regulators' sales guidelines. The Prophet survey said banks' behavior was worse than during a similar survey in August 1994.
The FDIC and other bank regulators established guidelines in 1994 concerning what banks should tell their customers, and Helfer said those rules should be revisited in light of the latest survey.
``The FDIC will work with the banking industry to ensure that all bank customers are fully informed of the risks they are assuming when purchasing mutual funds and other investment products that do not carry federal insurance,'' he said.
Helfer announced several initiatives to help banks do a better job, which include better training of bank employees who sell uninsured investments. The survey did note some progress by banks: Nearly 100 percent of the customers who visited banks were directed to an employee trained as an investment representative.
AP-DS-05-13-96 1637En
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