Bank investment representatives frequently fail to tell customers that mutual funds are not bank deposits and lack federal insurance, a study has found.
And bank platform employees who make referrals to investment representatives often step over the line by talking up specific mutual funds and their potential returns, according to the report by Marcomm Training and Compliance, Marlboro, Mass.
The study findings are based on information gathered in July and August, when Marcomm "shopped" several hundred representatives at seven northeastern banks. The banks were all clients of Marcomm, which was conducting mystery shopping programs for them.
Mystery shoppers pose as customers to evaluate brokers and bank employees who are involved with investment products.
According to the study, securities salespeople failed to mention 32% of the time that mutual funds are not bank products. And 15% of the time, salespeople failed to disclose that mutual funds lack deposit insurance.
Customers were not told about sales charges and management fees 12% of the time. And 5% of the time, they weren't informed that funds can fluctuate in value.
Customer-service representatives who lack securities licences but make referrals to securities salespeople also came up short.
These bank employees discussed potential returns 16% of the time, recommended certain funds 14% of the time, and answered specific securities-related questions 11% of the time.
These are all areas that bank regulators do not want customer-service representatives to broach.
"It's a problem," said Douglas Terella, chief executive officer of Marcomm Training. "These are the people who can basically get you into trouble."
Fleet Financial Group is among the banks that believe in turning a clandestine eye on programs before trouble develops.
Fleet Goes Undercover
The Providence, R.I.-based bank recently signed with Marcomm to shop Fleet's 97 securities salespeople.
"This will let the home office know what's working out there and what isn't," said Martha Fox, vice president for compliance at Fleet Investment Services.