New York City's consumer affairs agency is rapping mutual fund companies for issuing muddled disclosures to consumers, and banks are coming in for a share of the criticism.
The Office of the Public Advocate on Wednesday unveiled a 100-page review of prospectuses issued by 30 mutual funds, including four that were distributed through banks.
The agency concluded that the documents, which are intended to help consumers make informed decisions, were so full of legal and technical jargon that only bankers and securities lawyers could understand them.
Many prospectuses "obscure rather than illuminate what a fund is doing," the agency said. "And most omit basic information about risks."
New Way of Banking
The agency said it looked into prospectuses because "mutual funds are becoming basic banking for millions of Americans."
It evaluated the prospectuses on 15 points, including whether they disclosed that mutual funds lack federal deposit insurance.
Mutual funds prospectuses distributed through banks are required by the Securities and Exchange Commission to Carry this information: It "should be prominently displayed on the cover of the prospectus," said Barbara Green, deputy director in the SEC's division of investment management.
Though prospectuses of funds said through Chase Manhattan, Citibank, and First Federal Savings and Loan of Rochester contained these disclaimers, a prospectus offered by a Chemical Bank representative did not, the agency said. That prospectus was for a growth fund offered by American Funds Group.
Representatives of Chemical were not available for comment.
Other Faults Found
Though the other funds said through banks satisfied the deposit insurance disclosure requirement, the advocate's office found other faults.
For example, the prospectus for Chase Manhattan's Vista global fixed4ncome fund did not clearly present information about the funds' fees or its performance, the agency said.
And a Templeton fund said by Citibank did not give clear information about stock selection and performance, it added.
Representatives at the banks took issue with the findings, saying they had no direct authority over a prospectus' preparation.
"We use literature that's provided to us," said Citibank spokeswoman Susan Weeks. "I can't see how we could legally rewrite the information." Crucial Element in Sales Still, a clear prospectus is crucial to initial and ongoing fund sales to customers, another banker said.
"You can make it technically and legally correct to please regulators, but that's only half the job," said Thomas Munsell, managing director of Fleet investment Services.
Fleet recently revised prospectuses for its Galaxy family of mutual funds to make the information more easily understood by customers, Mr. Munsell said. Separately, the New York State attorney general's office said it is investigating several mortgage-income funds for possibly using "false and misleading information" in sales materials. The office said it is especially troubled "by the way these products appear to be targeted for sale to CD investors."
