A securities lawyer is counseling banks to negotiate financial settlements with disgruntled mutual fund customers rather than risk a backlash from regulators and the public.
Banks should settle these cases if there is even the slightest possibility that they ran afoul of guidelines governing mutual fund sales, said Philip J. Hoblin, partner at Parker Chapin Flattau & Klimpl, New York.
If regulators and lawmakers catch wind of complaints mounting against a given bank, that institution is bound to be looked at with a critical eye, he said at a recent mutual fund conference sponsored by International Business Communications.
Mum's the Word
He also urged bankers to have customers sign confidentiality statements when settlements are reached, prohibiting them from talking about any cases that do crop up.
"You don't want to appear in the Sunday Times," Mr. Hoblin said. "It's not good for business."
Other lawyers who joined Mr. Hoblin for a panel discussion at the recent conference said bankers should prepare for a wave of financial claims.
"If you're involved in mutual funds and the brokerage business, you're going to have litigation," said Theodore A. Krebsbach, partner with Kittay, Gold & Krebsbach, New York.
He said customers are most likely to challenge banks about the suitability of the products they sell. He advised bankers to protect themselves against such claims by getting "a lot of information up front about customers' investment goals."
And if customers' complaints end up before an arbitration panel or in court, "Prepare to death," he said. "Look at the account from A to Z, not just the disputed purchase."
The National Association of Securities Dealers says arbitration hearings are on the rise throughout the securities industry.
Disgruntled investors filed 5,400 claims last year, compared with 4,400 in 1992, the NASD said. In the first five months of 1994, claims totaled 2,000, about even with last year's pace. The NASD does not track how many of these claims are related to banks.
But a company that helps investors bring claims to arbitration says it has seen a rapid rise in claims and inquiries involving banks.
"We've had more this year than in any other year," said Ray Sigler, director of consumer affairs for Investors Arbitration Service, Woodland Hills, Calif.
Mr. Sigler declined to provide specific figures, but he said most bank-related complaints have come from people who say they received bad advice from bank brokers.
In many cases, the advice came after the bank's broker urged customers to switch their money from certificates of deposit, he said.
For their part, bankers say the key to avoiding complaints is to pay attention to customer needs from the time they inquire about mutual funds.
"It's not a matter of going back and trying to fix things" after a complaint is filed, said Debra E. Williamson, vice president for compliance at First Interstate Bank, Phoenix.
She said a well-run bank investment sales program should strive "to provide appropriate service to customers from the outset."