Securities exec: banks must stress fund risk.

WASHINGTON -- Banks need to work harder than securities firms to educate their customers about the risks of investing in mutual funds because bank customers bring "preconceived ideas" to the deal.

That was the message that a top official of the National Association of Securities Dealers delivered to an audience of bankers here this week.

After years of buying insured deposits, bank customers associate their banks with stability and security, said R. Clark Hooper, vice president of advertising and regulation at the NASD.

Told to Spell It Out

Mutual fund advertising by banks must crack through those notions, and clearly signal customers that investing is "a different ball game" than buying insured deposits, Ms. Hooper said.

Speaking to an American Bankers Association mutual fund conference, Ms. Hooper elaborated on a warning that she and others have sounded frequently in recent months.

She said the NASD wants to make sure that bank customers "shake loose the columns of the bank" and understand clearly what they are buying.

Urging Tighter Rules

The NASD regulates brokerdealers who sell investment products, and has pushed bank regulators and lawmakers to impose tighter rules on banks that sell mutual funds. Ms. Hooper's comments revealed deep misgivings about the challenge banks face as they plunge into the business.

No matter how many disclosures banks make, Ms. Hooper said she questions whether bank customers can shake attitudes that are rooted in childhood.

Many bank customers vividly remember walking into the bank with their parents and putting down $10 to open a savings account, she said.

CD Swap Advice

In a brief interview after her remarks, Ms. Hooper said any brokerage firm targeting investors who are redeeming CDs also must also make clear the differences between insured deposits and mutual funds.

But she added that banks bring "other baggage," that makes this a more pressing regulatory issue for them. In addition to the preconceptions of bank customers, conducting an investment business on bank premises confuses customers, she said.

In addition banks that sell funds that bear the name of the bank make it tough for customers to tell the difference, she said.

Counseled to Write in English

Ms. Hooper told the bankers that their mutual fund advertising must be clear to the lay investor and free of technical jargon.

"What's adequate [disclosure] for me and what's adequate for you, may not be adequate for the customer," Ms. Hooper said.

"You've really got to look at the level of understanding" of the customer.

Risk Reminder

She cautioned against misleading ads. For example, she said, advertising that claims that because "fund shares aren't guaranteed, they enable you to take advantage of market increases."

That is not the same as telling a customer, "Hey buddy! This thing could go up and down," Ms. Hooper said, and added that her group is looking hard at these issues.

Broker-dealers who do business at banks must prominently display their names on advertising, Ms. Hooper said.

Once again, the NASD is concerned that customers will focus on the more prominently featured bank name, and mistakenly believe that the bank is advertising insured products, she said.

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