The Financial Asset Builder: Facilitating Customer Disclosure and Suitability

Independent Banker, December 1994 | Go to article overview

The Financial Asset Builder: Facilitating Customer Disclosure and Suitability


As more and more consumers are asking their community banks to make investment programs available, two things become strikingly clear--bank customers need help in selecting products that are suitable to their particular financial situation, and they must be informed about the distinct difference between traditional products and mutual funds.

Therein lies the challenge facing community bankers. Many would like to make new products and services available to their customers, but they want to do so in accordance with strict regulatory guidelines. Their concern is heightened by intense scrutiny from the media, which both highlights consumers' need for new investment solutions and reveals the failure of many programs to ensure proper suitability and disclosure.

The key to meeting this challenge is educating the customer. Bankers need to know that their customers are being properly guided through the process of finding investment solutions for their financial goals, given their tolerance for investment risk. Bankers also need to be sure that their customers are learning the difference between a mutual fund and a checking account or a certificate of deposit. In both cases, the delivery system that supports an investment program available at a community bank plays a crucial role.

Help Is at Hand

Assistance in meeting suitability and disclosure responsibility is now available from the IBAA Financial Services Corp. (IBFS) in the form of a new interactive software program. The Financial Asset BuilderTM (FAB) helps IBFS registered representatives assess customer needs and suggest appropriate investment solutions.

FAB is the cornerstone of the IBFS mutual fund program. A subsidiary of the IBAA Community Banking Network, IBFS is a NASD-registered broker-dealer that supports community banks in meeting the investment needs of their customers.

By standardizing the process of assessing customer needs and providing extensive mutual fund disclosure, FAB is a tool that can help an IBFS registered representative allay bankers' concerns as they enter the mutual fund marketplace.

How It Works

FAB is a software program that supports the IBFS registered representative in taking a customer step-by-step through the process of creating and implementing an investment plan.

The software has four main components: the financial planning section; a database with information on MFS mutual funds selected by IBFS; a section that provides hypothetical illustrations; and a section that handles transactions.

For IBFS reps who have tried the FAB, one of its striking features is its ease of use. Seated in front of a workstation showing a color screen, the IBFS rep can use a pointer mouse or the keyboard to navigate through the program by pointing and clicking on simple icons.

The first screen the customer sees is a disclosure statement required by the Interagency Statement set forth by the four regulatory bodies that govern the banking industry (Office of the Comptroller of the Currency, Federal Reserve, Federal Deposit Insurance Corp. and the Office of Thrift Supervision). It clearly states that investment products are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any financial institution and that mutual fund share values are subject to investment risk including principal loss.

After viewing the disclosure statement, the IBFS rep and the customer go through six steps needed to create a long-range financial plan. Following these steps helps IBFS customers:

* Determine their short and long-term financial goals.

* Review their current financial situation--investments already in place.

* Identify their investment style--conservative, moderate, aggressive or saver.

* Select types of investments that match their goals and investment style, using appropriate asset allocation models.

* Evaluate investment solutions, reviewing fund objectives, pricing, performance and portfolios.

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The Financial Asset Builder: Facilitating Customer Disclosure and Suitability
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