PALM DESERT, Calif. - Banking regulators have gone overboard in their efforts to police mutual fund sales and advertising practices at banks, a panel of securities industry executives said.
While raising costs for mutual fund companies that want to do business with banks, policies and guidelines imposed over the past two years have failed to provide clear benefits to consumers, fund executives maintained during a panel discussion at an industry conference here.
They were particularly critical of a provision in the banking regulators' interagency guidelines that requires mutual fund brochures and prospectuses to carry prominent explanations of the differences between mutual funds and insured deposits.
"Most of us don't have the means to produce separate sets of marketing materials for banks and broker-dealers," said Robert G. Zack, associate general counsel of Oppenheimer Management Corp., New York, at the mutual fund and investment management conference sponsored by the Federal Bar Association and Commerce Clearing House Inc.
But, he added, "We have been left with the choice of coming up with separate sets of marketing materials or complying across the board with these guidelines."
Some of Oppenheimer's bank clients threatened to stop selling the company's funds unless the firm integrated the banking regulators' disclosures into its brochures and advertisements, Mr. Zack said. The company bit the bullet and did so because banks account for a large and growing chunk of its sales, he added.
Mr. Zack insisted he believes mutual fund investors at banks need such disclosures. But he maintained that banking regulators should leave the decision on how to provide these disclosures in the hands of the Securities and Exchange Commission and the National Association of Securities Dealers. "If we were left to the SEC and NASD rules we'd be fairly confident of our ability to police ourselves," he said.
One big gripe of the panel was that the Office of the Comptroller of the Currency has continued to add new wrinkles to its policies governing mutual fund sales at banks, even after adopting the joint guidelines. As a result, the Comptroller's office's requirements are in a constant state of change, and are more difficult for fund companies to comply with than those of the Federal Reserve Board, the Federal Deposit Insurance Corp., or the Office of Thrift Supervision.
"The OCC's involvement has been particularly prevalent in advertising, and has gone beyond the interagency statement," said R. Clark Hooper, vice president of advertising at the National Association of Securities Dealers.
She complained that the OCC's examiners are second-guessing banks' use of marketing and advertising materials that have been cleared by the NASD, a trade group that sets professional standards for broker-dealers.
"That to me is a real nightmare, and we're going to have to do something about it," Ms. Hooper said. She said the risk is that mutual fund prospectuses and marketing materials distributed at banks will become so cluttered with disclosures and boilerplate language that they will become completely useless to investors.
Ms. Hooper added that "the OCC has very readily expressed willingness to work though this."
Mr. Zack of Oppenheimer said he was "encouraged" to hear that the OCC has "adopted a more cooperative stance," but faulted banking regulators for failing to coordinate their regulatory efforts with mutual fund regulators and companies.
"Placing a skull-and-crossbones on a prospectus cover is not necessarily the way to remind people that mutual funds are not insured deposits," he said.
Another panel member said the general thrust of mutual fund advertising rules - not just at banks - has had the effect of scaring off customers. Dudley H. Ladd, managing director of Scudder, Stevens & Clark, New York, said the rules should be more supportive of the fund industry.
"The government makes it easy to advertise things that are bad for us like cigarettes and alcohol, but hard to advertise mutual funds, even though it knows mutual funds are good for us," Mr. Ladd said.
