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