FLORIDA retiree Max Wells is miffed.
"I was deliberately taken. I told them three times I didn't
want any risk," Mr. Wells says in a telephone interview from his
home in St. Petersburg.
Another swampland sales scam? A penny stock swindle? Nope.
Wells was dealing with a regional bank.
A year ago, Wells put $5,400 into what he thought was a
government-insured account, supposedly "guaranteed to earn 5
percent over five years," he claims. Two months later, Mr. Wells
received a statement in the mail saying his NationsSecurities
mutual fund account had dropped in value. "Nobody said anything
about a mutual fund," he fumes.
In case you missed it, your banker may now be a broker. For the
first time since the Depression, the legal wall blocking banks from
selling securities is being seriously breached. Banks are
aggressively fulfilling the promise of one-stop financial shopping
- stocks, bonds, insurance, and home mortgages all sold under one
roof. Banks have already captured more than $300 billion in mutual
fund assets (14 percent of the national total) since 1990,
according to the Investment Company Institute, a Washington-based
mutal fund industry trade group.
But beyond the promise lies a peril. The transformation from
bank to brokerage firm is provoking customer confusion and, in some
cases, unexpected financial losses for retired Americans with
little means to recoup savings.
Complaints and lawsuits
"Bank customers are risk-averse people," says Jonathan Alpert,
Wells's attorney. "Millions of taxpayer dollars have been spent
over the years to give banks credibility, stability, status, and an
air of impregnability. The banks are using that trust to trick
people into buying securities."
Wells and other disgruntled customers have caught the attention
of the banking industry with a multimillion-dollar class-action
lawsuit filed this summer against NationsSecurities and its parent
company, NationsBank, a Charlotte, N.C.-based bank with about 1,900
offices in 10 states.
About 60 NationsSecurities stockbrokers have also filed
arbitration claims, most in the last month, with the National
Association of Securities Dealers (NASD), a New York-based
securities industry self-regulatory organization, complaining that
the bank's brokerage unit encouraged them to mislead bank
customers. Two other Southeastern banks have legal claims pending
in similar cases and state securities regulators say a rising
number of complants suggests a pattern of abusive practices.
NationsBank attorney Peter Aldrich calls the allegations
"wild" and "totally false," in a statement filed with the NASD.
Bank officials say brokers employing underhanded sales tactics are
fired because such practices are illegal and bad for business.
"Banks look for long-term relationships," Alfred Pollard told a
congressional hearing on the issue last month.
"Banks have every incentive to maintain customer confidence by
demonstrating that banks are the most trusted providers of
financial services," says Mr. Pollard, a senior director of The
Bankers Roundtable, a Washington-based trade group composed of
executives from the nation's largest banks.
The confusion stems from what goes on in today's bank lobby.
Once a genteel place where federally insured deposits were taken,
banks are subtly but rapidly becoming high-powered sales rooms for
uninsured securities. Larger regional banks are marketing not only
well-known mutual funds, but their own brands of mutual funds,
often trading on their reputation by giving the funds similar names
and using promotional material that uses bank corporate colors and
Consumer groups, Congress, and federal regulators are concerned
that customer confusion is mounting. Often securities brokers sit
in the same lobby, and sometimes, as in Wells's case, at the same
desk once occupied by bank clerks.
"When they walk into the lobby of their hometown or
neighborhood bank - which they trust and have done business with
over the years - and they see that seal on the window that says
`Insured by the FDIC,' customers are likely to believe that
whatever transaction is going to take place there is backed up by
the bank and insured by the federal government," says Sen. …