Here's a consumer warning from the banking industry: Mutual funds are not insured by the FDIC.
They're not an obligation of, or guaranteed by, the bank. They could involve investment risk, including the possible loss of principal.Frankly, it's not clear that all investors understand the risks of investing in a mutual fund today, whether it's through a bank, a brokerage firm or a mutual fund company.
While bankers are working to clear up the confusion, a survey released by the Securities and Exchange Commission last month found that one in five holders of mutual funds believe mutual funds sold through banks are federally insured, like savings accounts and CDs, and two in five (39 percent) believe mutual funds purchased from a stockbroker are federally insured.
Folks, no mutual fund carries FDIC deposit insurance, no matter where you buy it. It's that simple.
In September, the American Bankers Association and five other national trade associations - representing virtually every deposit-taking institution in the country - announced that the banking industry would develop consumer guidelines and recommend practices to help bank customers understand the difference between an insured bank deposit and an uninsured mutual fund.
Information is the best consumer protection, and these model policies and procedures, when released next month, will help bank customers get the best information on which to base their investment decisions.
Banks are doing this because we want our customers' confidence as much as we want their business.
Our guidelines call for bank customers to sign an acknowledgment when they open a mutual fund account. It will say that they understand that these investments are not FDIC-insured and may involve the possible loss of principle.
The guidelines also will ask bankers to clarify the relationship between the bank and the mutual fund affiliate, so that if the bank or its affiliate is investment adviser to the fund, for example, the customer will know that.
And we will ask that the area of the bank in which mutual funds are sold be clearly marked as distinct from those locations that deal in insured accounts.
The guidelines, which we've been working on for months, will call for many other consumer safeguards as well.
Would more legislation out of Washington help? Only if you believe that a football team's owner can do a better job calling plays than the coach.
Banking's regulators are best equipped to keep an eye on the banks, and they're doing that. After all, it's the regulators - not Congress - who are already out on the field monitoring bank compliance in this area as well as with the myriad other requirements that guide the banking business.