In an unusual move, Wall Street Investor Services is urging its bank clients to call thousands of customers back into branches to review the investment products they bought there.
The New York firm, which sets up mutual fund and annuity sales programs for banks, made the recommendation in letters last week to chief executives and investment program managers at the 60 banks it serves.
"It is essential that those who invest in mutual funds make informed choices and understand what they are buying and from whom," says the letter from chief executive Denis P. Kelleher.
Form of Education
In an interview, Mr. Kelleher emphasized that the request is not a "recall." Rather, it is a way for sales representatives to educate customers about how possible market shifts would affect their investments.
Banks have been under pressure from regulators to step up disclosures to customers about the risks of investing in mutual funds. Reviewing investments with customers, Mr. Kelleher said, is a way for banks to show regulators that they are equipping customers to deal with a possible market downturn.
In its mailing, Wall Street Investor included a proposed letter that sales representatives at banks can send to investors.
An Investment |Checkup'
The letter reminds customers that factors such as risk tolerance, financial goals, and investment expectations were discussed when they made their initial investments.
But, it adds, "Just as you go to the doctor periodically for a physical checkup, you need to review your mutual fund investment against these changing factors from time to time."
A banker who received one of the first letters said he was surprised by the request, but believes it makes sense. "It's unusual, but it's a good idea," said Mark Stevens, vice president of financial services at F&M Financial Corp., a $128 million-as-set banking company in Granite Quarry, N.C.
In a separate letter, Wall Street Investor's compliance director, Richard Cumiskey, asked investment-program managers to revise disclosure forms and other information customers receive.
"It is essential that all our bank programs amend their materials," the memo stated.
Money Well Spent, Firm Feels
Wall Street Investor says the materials must incorporate specifics that regulators are calling for, including language stating that investors risk losing principal on mutual fund investments.
The outreach has already cost the firm about $5,000, including costs to reprint some of its own marketing materials.
But officials feel the effort is worth it, given the current regulatory environment.
Recent regulatory guidelines call for banks to make sure customers receive ample information when considering investment product purchases. Regulators are concerned that customers realize that mutual fund and annuity investments are not covered by federal deposit insurance.
|Much More Agressive'
The guidelines clearly influenced Wall Street Investor's decision to contact bank clients. But senior vice president Hal Rose says, "We've been very cognizant of proper disclosure. With the guidelines, we want to be that much more aggressive. We want to meet or exceed them."
Greater disclosure could also help the five-year-old firm and its clients if the market dives and disgruntled investors take legal action after suffering losses.
Others in the industry agree that banks and marketing firms must heed regulators'; warnings. But few, if any, are going as far as sending letters that request conferences with customers.
|Incredibly Careful'
"We've never called customers back in the past; we're incredibly careful on the front end," said James McCoy, a vice president at Signet Financial Services, Richmond, Va.
Signet operates its own investment product program in 240 branches.
Wall Street Investor's rivals also do not feel that customer call-backs are needed.
"We wouldn't feel from our standpoint it's necessary to do that," said James K. Mitchell, president of a San Diego third-party marketer that bears his name. "If [the investment] was appropriate then, it's appropriate now."
