SAN DIEGO -- While most participants at a recent compliance conference flocked to the fair-lending discussions, speakers predicted mutual fund sessions will be the big draw in coming years.
"The industry is just getting with it," said James M. Rockett, an attorney with the San Francisco law firm of Ropers, Majeski, Kohn, Bentley, Wagner & Kane. "It's probably one of the riskiest businesses we've gotten into."
Mr. Rockett told an audience at the California Bankers Association's annual compliance conference to expect exams not just from banking regulators, but from securities regulators as well.
Dudley Nigg, executive vice president at Wells Fargo Bank, is already preparing for these exams, putting a strict compliance program for mutual funds sales in place.
Any Wells Fargo employee who is hired to sell investment products must sign a contract that says he will be fired if he falls to give customers the proper disclosures.
Wells is checking up on those employees with mystery shoppers. The program hasn't tripped anyone up yet, but, Mr. Nigg admitted, "We're looking for a few scapegoats ."
While some bankers laughed at his cut-throat attitude, Mr. Nigg said a brokerage firm employee failing to make correct disclosures would be out of a job instantly.
"We've been much gentler in the banking industry," Mr. Nigg said. "If someone's not prepared to do it right, then find someone who is."
Bankers should be more careful, anyway, because customers . who buy products from a bank are likely to be less sophisticated, he explained.
"Customers are going to be relatively naive from an investment point of view," Mr. Nigg said. "You ought to be approaching this with a higher level of care than a brokerage company."
Licensed sellers have so far kept the bank in better compliance than unlicensed, Mr. Nigg said. People who are the best salespeople follow the rules the best, too, he said.
Although tellers cannot give customers advice on products, as front-line people they need to know how to handle customer questions about mutual funds, said Mr. Rockett.
Wells also has a call-back program where new customers are called to make sure they understand what they have just bought is not insured by the government. "We actually complete the loop," Mr. Nigg said.
Another good way to avoid customer confusion is to clearly separate areas in the bank where investment products are sold, according to Mr. Rockett.Free-standing kiosks segregate product sales from the rest of the bank at Wells Fargo.
It's a good compliance idea, but an even better marketing idea, said Mr. Nigg. "We're beginning to market to people who we want to think of the bank as an investment house," he said.
Mr. Nigg also warned about possible regulatory problems with differentiating between the bank's own mutual funds and third-party funds.
The two shouldn't have conflicting prices, and sales people should not get higher commissions on one or the other, he said.
