one of the biggest challenges for the fund industry is to make sure they don't expect too much. That was the consensus of four mutual fund executives who spoke at a conference here last week. Even the smallest market downturn could feel like a jolt to investors who have been gliding on record returns, they said. "There's a whole generation of new investors who have never experienced a bear market," Roger Servison, executive vice president and managing director of Boston-based Fidelity Investments, told the 300 bankers and fund sales executives at a meeting sponsored by the Bank Securities Association. Gregory E. Johnson, president of Franklin Templeton Distributors, San Mateo, Calif., agreed. "Right now we're seeing strong, record equity markets," he said. "The problem with that is the misleading expectations out there." Mr. Servison said the key is "managing investor expectations." That means making sure customers understand that mutual fund returns can go down as well as up, and helping them ride out market gyrations. The two executives, joined by Robert Butler, president of Pioneer Group, Boston, and Michael Laughlin, chairman of Alliance Fund Distributors, New York, engaged in a wide-ranging and spirited question-and-answer session. Mr. Butler said he expects to see a number of bank-managed mutual fund families placed on the auction block. Many are too small to operate profitably, given competition from much larger and more experienced players. They will give in, he predicted, to the consolidation wave that is already sweeping the fund industry. "A lot of banks have seen that this is not the cash cow, or as easy as they thought it was," he said. "They'll be consolidating too." The executives sparred over the role financial planning - a formal process of offering comprehensive, long-term investment advice - should play at banks. Mr. Laughlin insisted that because banks have easy access to the financial backgrounds of their customers, they "are uniquely equipped to provide this type of service." But Mr. Butler shot back that bank brokers talk a good game, but have failed to adopt the needs-based approach that is the hallmark of financial planning. Many bank brokers are still more interested in hawking hot products, Mr. Butler said. "I still see bank brokers - top producers - who brag that they only sell fixed annuities." Mr. Servison said banks will have a tough time catching up to the experience of the leading independent financial planning firms. He said the real opportunity for selling mutual funds was in trust departments, where banks can expand their role as custodians to advisers of estate planning, a field that where there is demand for brokers who understand its complexities. "Most banks are tremendously underinvesting in the trust side of their business," he said. The executives also locked horns over how safe the Internet is for live mutual fund transactions. Mr. Servison saw opportunity there, and said making transactions over the Internet was no more risky than "putting your credit card on a table at a restaurant." But Mr. Butler expressed serious reservations. "Accessing my retirement account versus my credit card - there's a big difference," he said. "Security isn't that complicated," Mr. Servison replied. "I hope you're right," said Mr. Laughlin.
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