Magazine article American Banker

Banks under Gun to Ensure Funds Match Clients' Needs

Magazine article American Banker

Banks under Gun to Ensure Funds Match Clients' Needs

Article excerpt

National City Bank of Minneapolis knows there is no magic formula to judge which mutual funds best suit a specific customer's needs.

Connie Weinman, compliance counsel for the National City Bancorp. unit, said her brokers follow specific guidelines to match potential customers to the most appropriate funds. Prospects are asked to fill out questionnaires to describe their investment goals. Once a sale has been made, brokers track how those goals change over time and which funds are the most profitable.

Regulators expect banks to assess each customer's needs to determine what investments are suitable. Failure to comply with these so-called "suitability" requirements can lead to big fines.

Just ask NationsBank Corp. It sold two high-risk closed-end mutual funds to a couple in Austin, Tex. The funds subsequently lost 80% of their value. The bank settled out of court last December, agreeing to pay the couple $30 million.

Ms. Weinman said the settlement should have helped bankers wake up to the suitability issue and clean up their acts.

National City seems to be convinced it has the problem under control. The bank "has been familiar with the suitability issue for some time," Ms. Weinman said. "But the majority of banks probably aren't doing enough."

National City sells mutual funds to its customers through Financial Network Investment Corp., a Torrance, Calif.-based brokerage firm. Ms. Weinman said Financial Network's brokers ask customers to disclose their income, net worth, and financial objectives. This last category is especially important because it includes the length of time the consumer plans to hold the investment and the amount of total return they are seeking.

Marietta Perkins, a senior manager with KPMG Peat Marwick in Washington, D.C., said the checklists and questionnaires National City uses are effective ways of helping match a customer with the right product. …

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