How much compliance support can banks expect from the firms that help them manage investment product marketing programs?
That's the question American Banker put to five large marketing firms, which collectively service about 800 banks.
Investment products marketing executives said they are well equipped to help banks toe the line with training programs, informational brochures, and other services.
And for the most part, bankers seem to agree.
"It's an advantage for us to have a partnership with a third party. We don't have this ongoing battle with regulators," said Samuel Gentry, senior vice president of Miami-based Capital Bank, a client of Wall Street Investor Services, New York.
Certainly, there is little room for error when it comes to explaining investment risks to bank customers.
Beside the risks of alienating customers, banks that make missteps could face sanctions. Banking and securities regulators alike have imposed strict guidelines for investment sales. And the regime will only get tougher if, as expected, the National Association of Securities Dealers creates hard- and-fast rules for bank-affiliated brokerages.
As a result, experts say, the pressure for marketers to keep investing in their compliance efforts won't let up.
"Banks are keenly interested in having their third-party marketing firms maintain their commitment to compliance," said Robert M. Kurucza, a law partner with Morrison & Foerster, Washington.
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Invest Financial Corp. At Invest Financial Corp., compliance training doesn't stop with NASD- registered brokers. The Tampa, Fla., company routinely trains entire bank staffs.
Invest, which serves about 250 banks, prides itself on a 15-person compliance and legal department that chairman Merlin R. Gackle says "is on the cutting edge" of regulatory change.
Last May, for example, the Kemper Corp. subsidiary came up with a campaign dubbed "Not FDIC Insured" that it mailed to all 13,800 banks in the country.
The mailing, highlighted by a traffic warning-like sign on a bright yellow background, advertised a disclosure package available to help any bank "reduce the costs and concerns of producing materials which meet regulatory guidelines."
Mr. Gackle said Invest has had consumer disclosure policies in place for about four years - far longer than regulators have insisted upon them. Invest also insists on physical separation between the retail area of the bank and the investment area. And it audits bank branches and updates broker training every year.
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PrimeVest Financial Services
PrimeVest Financial Services doubled its staff of attorneys to four last summer. "We spent a lot of time talking to regional regulators," said Stephen H. Fischer, president of the St. Cloud, Minn., firm, which has 200 financial institution clients. "It was quite a task."
The company has also created three separate kinds of transparent "disclosure" stickers that banks and credit unions can use on the front of securities brochures.
Mr. Fischer said the company holds weekly and annual training sessions for brokers, frequently audits bank programs, and sends out monthly regulatory updates compiled by the legal staff.
Investment Centers of America
Pop quiz: which investment marketing company was the first to require signed disclosures from customers?
Investment Centers of America says it deserves the credit. The Bismarck, N.D., company has required these disclosures - now commonplace - since it started operations in 1985.
"We've always made sure that our brokers stressed suitability when making a sale," said Thomas E. Gunderson, the company's chairman.
Investment Centers of America even solicited a visit from the Comptroller's office last December. Examiners took a weeklong look at the firm's program, and made some suggestions on improving advertising materials and administration.
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Robert Thomas Securities
Robert Thomas Securities has been feverishly adding to its compliance policies since last year.
Last July, the St. Petersburg, Fla., unit of Raymond James Financial, hired a new compliance chief, Kevin A. Carreno, for its new bank group. Then in November it hired a full-time auditor, who has compiled a bank regulations manual.
It's not always easy to keep track of what regulators want. "I wish some regulator would jump in and say 'We have overall supervision,' " Mr. Carreno said.
Robert Thomas has come up with a "Client's Bill of Rights," a 17-page booklet that covers topics ranging from understanding securities to a set of mutual responsibilities for the customer and the client. Since last July, when it was conceived, the booklet has been distributed to all 80 of the company's bank clients.
In addition, the firm now sends customers a trade confirmation, explaining the details of each security sale.
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Liberty Financial Bank Group
Boston-based Liberty Financial Bank Group last month introduced "the Risk/Reward Pyramid," a dark blue, three-dimensional sheet that, folded into a pyramid, illustrates the correlation between risk and reward associated with investment products.
FDIC-insured products, such as certificates of deposit, are listed at the bottom, and the pyramid peaks at futures and options.
"We really believe that a better-educated investor will be with us long term," said William Rice, a spokesman for Liberty, which has 70 bank clients.
