Bank Performances Uneven in Securities

Article excerpt

People unhappy with the mutual funds they bought at banks are making their dissatisfaction known in this year of widespread losses.

Max L. Wells, a retired federal employee, recalled recently that he wanted nothing to do with mutual funds when he went to a Florida branch of Nationsbank a year ago to transfer $5,400 from another institution. But unknown to him, he said, the money was funneled into a government securities mutual fund, leading to a $400 loss as interest rates rose.

"The sole reason that I went to the bank was for safety and security," Wells, 66, said in a recent phone interview. "I trusted the bank, and they took advantage of that trust."

Wells has joined a class-action lawsuit with 100 Florida residents who say they were deceived into buying mutual funds at branches of Nationsbank. The bank, which is based in Charlotte, N.C., declined to comment on the case. Its brokerage unit, Nations Securities, handles branch sales and has procedures to assure that brokers treat customers fairly, said Ellison Clary, a spokesman. Brokers are trained to "consider the individual customer's case first and foremost," he said.

Commercial banks, long prized by consumers for their safety and government deposit insurance, have become conduits for uninsured investments like mutual funds, which put principal at risk. With this role, perhaps some consumer confusion is to be expected.

But in scores of complaints across the country, bank customers are calling sales practices deceptive, saying they were misled about the risk, pushed into inappropriate investments and not told of the fees involved.

Although quick to point out that some claims are frivolous and that novice investors have been whipsawed by interest rates, the Investors Arbitration Service of Woodland Hills, Calif., said overall brokerage complaints had risen tenfold this year, with an emphasis on bank brokers.

Denise Voigt Crawford, president of the North American Securities Administrators Association, said complaints to state regulators appeared to be concentrated in areas with the most retirees. In Florida, the state comptroller has said it is looking into practices at the Barnett Bank, First Union Bank and Nationsbank. The Securities and Exchange Commission and other Federal regulators are also investigating some complaints.

Could banks do better? Yes, says Sen. David Pryor, D-Ark., and chairman of the Senate Special Committee on Aging.

After a hearing on the issue in September _ at which Wells testified _ Pryor said he was convinced that disclosure had been insufficient, and he planned to draft legislation next year to tighten rules on bank sales of uninsured investments.

Recent surveys by researchers at least partly support this view. When it comes to sales practices, bank brokerage units have progressed from "really bad" to "bad," said Prophet Market Research, a national research firm in San Francisco.

Barry Leeds Associates, a New York research company that serves the banking industry, concluded from its own survey that banks were doing a good job of communicating to customers which investments were not insured, disclosing this fact 89 percent of the time. Leeds found, however, that sales representatives did not always gauge a prospect's risk tolerance or volunteer information about fees.

The banking industry maintains that given its many millions of customers, legitimate complaints about sales practices are few. "It's not a widespread problem," said Alfred Pollard, senior director of the Bankers Roundtable, which represents the 125 largest banks, many of which sell mutual funds. …