September 15, 1993
TO: BANK INVESTMENT MANAGEMENT MEMBERS NO. 22-93
BOARD OF GOVERNORS NO. 79-93
TASK FORCE ON BANK SALES ACTIVITIES
RE: OTS GUIDANCE ON THE SALE OF MUTUAL FUNDS AND OTHER
UNINSURED PRODUCTS
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The Office of Thrift Supervision recently issued a bulletin to thrift
directors and management on the sale of uninsured products, including mutual
funds, on the premises of savings associations or sold as a result of a savings
association customer referral. As we previously informed you, the Institute
recently submitted proposed guidelines on bank mutual fund activities to the
federal banking agencies. (See Memorandum to Board of Governors No. 63-93, Bank
Investment Management Members No. 16-93, and Task Force on Bank Sales Activities,
dated July 21, 1993.) The Office of the Comptroller of the Currency and the
Federal Reserve Board have issued statements on this subject. (See Memorandum to
Board of Governors No. 62-93, Bank Investment Management Members No. 15-93, Task
Force on Bank Sales Activities, dated July 19, 1993; Memorandum to Bank
Investment Management Members No. 13-93 and Board of Governors No. 57-93, dated
June 25, 1993.) A copy of the OTS’s bulletin is attached.
1. Sales Techniques and Disclosures
The bulletin states that at a minimum, sales representatives should
disclose that the investment is not FDIC-insured, the value of the investment may
fluctuate, the return on the investment is not guaranteed, and that loss of
principal is possible. OTS strongly encourages thrifts to obtain customer
certification of this disclosure. (A form of certification is attached to the
bulletin.) A certification is required for all sales of securities of the
savings association or its affiliate on association premises.
Savings associations generally may not permit the offer or sale on their
premises of uninsured products with a name identical to the savings association’s
name. Any customer referrals to a sales representative should alert the customer
to the fact that the investment products are not guaranteed by the savings
association and are not federally insured.
Advertisements of an uninsured product must identify the company offering
the product, and not the association, as the seller. Third-party advertising
must not appear to be that of the association and the savings association logo
generally may not be used on uninsured products.
2. Compensation
Association employees should not receive a fee for referrals if the
compensation depends upon the sale of the investment product. In any event,
referral fees should be nominal.
3. Sales Training
Management should ensure that sales personnel are well-trained. Sales
training should cover the manner in which sales are to be conducted, what may be
said to potential investors, and, when appropriate, the restriction that a sales
person offering underwritten securities can respond only to questions covered by
the offering materials. The training should be designed to prevent material
misstatements, overly optimistic forecasts, unsuitable recommendations, and the
dissemination of any false or misleading information.
4. Suitability Standards
The NASD’s Rules of Fair Practice are the appropriate reference for
suitability determinations. The association should periodically assess the
qualifications of each company that sells the uninsured products on its premises.
The association may wish to require that sales representatives keep a file of all
customer complaints and perform a post-audit review of a representative sample
of transactions.
5. Conflicts of Interest
Associations should take precautions to detect and avoid conflicts of
interest.
6. Fiduciary Accounts
Associations must comply with ll applicable state and federal law for
transactions that involved fiduciary accounts.
Thomas M. Selman
Assistant Counsel
Attachment