Barry Leeds makes his living by monitoring how well banks serve their customers and comply with rules: His firm, Barry Leeds & Associates, is the graddaddy of mystery shoppers.

A growing chunk of Mr. Leeds' business is devoted to bank investment products activities. As banks venture into mutual fund and annuities sales, they must cope with a complicated and vast array of disclosure and sales guidelines.

In a survey released last week, Mr. Leeds concluded that banks are doing a good job, by and large, of explaining investment risks to customers. He also gives banks high marks for helping customers grasp the differences between insured deposits and uninsured investments.

Mr. Leeds stopped by the American Banker's New York headquarters last week to offer his perspective on banks' investment products compliance efforts.

Q.: How many bank investment product sales program have you looked at?

LEEDS: We have about 30 ongoing clients in that area. We've looked at banks in the investment area over the past five years. They would probably number about 100 banks, as well as some brokerage firms.

Q.: How well are banks meeting their compliance obligations with investment products customers?

LEEDS: It's a 100% improvement over a year ago. One reason we did our survey is that we had started to note improvements in banks were were working for, and we were wondering if this was a new industry norm.

We found it was so -- that in oral and printed disclosures banks are doing much, much better in explaining risks and rates of return that aren't guaranteed.

Q.: What lapses are likeliest?

LEEDs: In a few instances, we see that banks or their investment counselors are not explaining that funds are not obligations of the bank and are not guaranteed by the bank.

Generally, sales representatives are explaining the lack of FDIC insurance, the risk, the rates of return. But with an experienced investor, they might not take the time in explaining disclosure issues that they would to a first-time investor.

Q.: What can banks do to overcome compliance shortcomings?

LEEDS: It comes down to continual training and monitoring, as well as systematizing the sales approach.

They can use paper checklists or computer-drive checklists and profiles so that sales reps are asking questions, probing, getting as much information as possible from a customer before recommending a product.

Q.: Many banks use third-party marketing firms to sell funds. Do some special issues arise for them?

LEEDS: The bank is still responsible for those representatives because they are on the bank's premises and selling to customers of the bank.

One issue is how freely you turn over confidential bank information, and lists, and names of customers, and information on when CDs are rolling over.

Q.: How about banks with proprietary funds?

LEEDS: We're probably going to expand it beyond the major institutions and markets. We'll go into some suburbs of those markets, as well, so we'll be looking at some of the smaller and suburban institutions as more and more banks are getting into this.

There are so many newcomers. We worry a little bit about the kind of guidance smaller banks are getting.

It probably is better they go with a third party to start with. But against, banks have to realize that they're still responsible for what happens on the premises. And if there's a customer complaint or lawsuit, they may be vulnerable.

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