STATE SECURITIES REGULATORS are joining the swell of supervisors who want a bigger say in the way banks sell mutual funds.
Regulators from Texas and Iowa, speaking at a Securities Industry Association's conference last week, said investors who shop in banks don't get the protection or disclosure they receive when buying from brokerage firms.
Denise Voigt-Crawford, securities commissioner at the Texas State Securities Board, cited a recent Securities and Exchange Commission survey showing that many investors who buy mutual funds at banks mistakenly think the funds are insured by the Federal Deposit Insurance Corp.
Consumer Issues Termed Overlooked
And Craig Goettsch, Iowa superintendent of securities, said the problem is that bank regulators focus on institutions' well-being, focusing on financial stability and capital ratios.
In contrast, agencies that oversee the securities industry focus on customer protection and make education a focal point, the regulators said at a panel session during the SIA's annual conference in Boca Raton, Fla.
Mr. Goettsch, who is president this year of the North American Securities Administrators Association, added that he sees nothing wrong with banks selling mutual funds, as long as they train their sales forces properly and make sure consumers understand investment risks.
The securities regulators made their comments at a time when banking regulators are redoubling their efforts to ensure that banks follow consumer-disclosure guidelines.
A Dissenting View
Detailed guidelines have been issued in recent months by the Office of the Comptroller of the Currentcy, the Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision.
Rainey Gray, president of financial investment services at Boatman's Bancshares St. Louis said it's a mistake to think that bank regulators are focusing on risks to the banking system to the exclusion of consumer issues.
"It is my strong impression that the bank regulators are very focused on customers," Mr. Gray said. "Regulators are very proactive when it comes to protecting them."
The Comptroller of the Currency's new consumer guide to mutual funds has been panned by Rep. Charles E. Schumer.
"Bank employees are not following industry guidelines, and they will not read a brochure," the New York Democrat said in a press release. He said banks can't be counted on to make appropriate disclosures about funds without legislation.
Rep. Schumer recently joined with House Banking Committee Chairman Henry Gonzalez, D-Tex., on a bill that would require banks to let customers know that mutual funds are not bank products and are not FDIC protected.
A recent review of bank retail mutual fund programs offered further "proof" that legislation of this type is needed, Rep. Schumer said. In a recent spot-check, the American Banker found that investment sales representatives often failed to draw appropriate distinctions between mutual funds and traditional bank products.
