Broker Turnover Seen Imperiling Bank Fund Programs

Banks need to limit broker turnover within their investment programs if they are to effectively manage their customers' expectations, the chief executive of a major mutual fund company said Thursday.

"Banks need to get more stable sales forces to develop customer relationships," said Bridget Macaskill, chief executive officer of OppenheimerFunds Inc., New York.

"Until that happens, banks cannot have the kind of long-running dialogues they need to have with investors to prepare them for a market downturn," she said.

As the bull market continues to rage, mutual fund executives who gathered here for the Investment Company Institute's annual conference urged their colleagues to warn investors that the good times will not last forever.

Indeed, preparing investors for a market correction-which everyone says is inevitable-was the main topic of conversation both in formal discussions and hallway chatter.

For banks, the issue is particularly pressing. They are relative newcomers to the investments business and have long marketed themselves as safe havens for their customers' cash.

"Banks in general have been more conservative and more concerned about (their customers') expectations getting away from them," said Lawrence J. Lasser, president and CEO of Putnam Investments Inc. "Their customers have the most cautious expectations, and the banks have managed them that way."

Fund executives called for candid discussions with shareholders.

"You have to be contrarian in your communications," said John J. Brennan, president and CEO of Vanguard Group, Valley Forge, Pa. "People are despondent after bad times and exuberant after good times."

To moderate investors' moods, he suggested reminding them that, whether good or bad, market cycles are temporary.

Ms. Macaskill said Oppenheimer last year told investors in its funds to expect a market correction in 1997. The move initially upset the bank brokers that sell Oppenheimer's portfolios, she said, but it gave the brokers the opportunity to discuss an important issue with their customers.

"The more up-front you are about it, the less investors will panic," she said.

Some bank brokers do not have the long-standing relationships with their customers that their competitors have, Ms. Macaskill said. Some do not communicate with their customers regularly.

Still, if the stock market does dive this year, banks are unlikely to shrink investment programs, as they did after the bond market debacle of 1994, she added. Ms. Macaskill and other fund executives said banks have made significant strides in selling investments.

While banks certainly are warning of an investment risk, their customers may not be listening, said Robert Graham, president and chief operating officer of Aim Advisors Inc., Houston.

"Their idea of a bear market is when the market is up 15% and not 20%," he said.

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