Magazine article American Banker

Banks Held to Higher Standard in Funds Market, Analyst Says

Magazine article American Banker

Banks Held to Higher Standard in Funds Market, Analyst Says

Article excerpt

While all financial institutions that sell mutual funds must do thorough due diligence to ensure the products they offer are sound, banks must be particularly careful, according to A. Michael Lipper, a veteran watcher of the mutual fund wars.

"Banks have a greater liability," Mr. Lipper said in an interview at a recent securities sales conference. "They have the normal distributor liability, but they also have a higher level of trust.

"It's more important for a bank than for a brokerage."

The founder of Lipper Analytical Services, Mr. Lipper told attendees of the conference sponsored by the American Bankers Association last week to closely inspect the funds they sell not only for performance risks, but for nonstatistical risks as well. These include possible changes in the sector in which a fund invests, in its portfolio management team, or in its investment concentration.

"Every problem starts with a fund doing too well and then having significant problems," he warned.

For banks, the need to rid their product menus of potential laggards is especially pressing, Mr. Lipper later added.

"A mistake in this area, and a bank can lose an entire (customer) relationship," he said. "That's a problem because the profits are not in the securities relationship. There's a double liability."

For similar reasons, Mr. Lipper warned banks to tread lightly into the 401(k) business. While they are very capable of providing investment management services to corporate clients who want to offer 401(k) retirement plans, they can fumble in administering the plans. …

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