SAN DIEGO - Though banks entering the securities industry may not be held legally liable when such investments sour, they could be held accountable if they do not warn customers promptly that their portfolios are in trouble.

So says Jonathan A. Wright, senior vice president of wealth management at $33 billion-asset Union Bank of California in San Francisco. Speaking Friday at an investment and trust officer conference sponsored by the California Bankers Association, he said this accountability is just one issue banks have to confront in expanding into brokerage and insurance under the Gramm-Leach-Bliley Act.

Banks cannot guarantee that their customers will make money when investing in securities, but they still face a risk if they stop acting as stewards for their customers, Mr. Wright said.

"We should not be responsible for market risk," but the Office of the Comptroller of the Currency "still requires that our primary concern be the welfare of our customers," he said. "So we might have to monitor their investments and advise them early when their investments are not doing well."

Banks should also watch out for potential conflicts of interest when expanding into securities and insurance, Mr. Wright said. "For example, if a bank is underwriting a security, they should not sell it to a trust customer, unless they believe the trust customer really should have that stock."

But banks should be prepared to explain to regulators why they sold their own securities to their customers, and it may be prudent just to avoid the practice altogether, he said.

Banks face additional challenges if they choose to combine their trust department with their securities and insurance operations, Mr. Wright said. "You'll most likely have employees who will serve as trust officers, investment advisers, brokers, and insurance agents, and they are going to be regulated by different agencies. It's going to be a daily compliance nightmare for them."

To ease that burden, Mr. Wright recommends integrating the compliance programs of a bank's security and insurance operations into an existing program to coordinate oversight and minimize bureaucratic bloat. Still, he said, bankers should "expect compliance program to double - ours did."

Ronald G. Fick, president and chief executive officer of Borel Bank and Trust Co., a $331 million-asset bank in San Mateo, said the costs of an expanded compliance program can be heavy, especially for community banks

"We're evaluating whether we're going to go into the brokerage business," Mr. Fick said in an interview after Mr. Wright's presentation. "Those additional employees who would have to hold all those licenses and those extra compliance officers could get very expensive, and we may not do it."

Richard J. Roncaglia, executive vice president of $696 million-asset Scripps Bank in San Diego, said larger banks are better equipped to absorb such expense. The cost of expanding into brokerage was one the reasons why Scripps announced a deal in June to sell to $80.8 billion-asset U.S. Bancorp of Minneapolis, he said.

"It's hard to make a return to your shareholders when you go into all these businesses," Mr. Roncaglia said. "That's one reason why community banks are being acquired by bigger banks."

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