“Many consumers mistakenly believe that all products
sold in their bank are federally insured and that they cannot
lose money by buying a product there. They’re wrong.”
- Nancy Lloyd, author of
Simple Money Solutions
Banks have made a lot of headway recently in their drive
to offer securities products within bank branches; in fact,
some banks have taken the step recently of acquiring brokerage
firms. A bank’s ability to sell securities and use its
current customer base to build its security business presents
both good and bad prospects for consumers.
Services: All offer investment advice, real-time quotes,
research, investment information and tools. Some offer Web
site account access, check-writing privileges, and convenient
locations with face-to-face access to your financial advisor.
Products: Full selection of traded securities and
mutual funds.
Payment: Generally commission-based but some bank-affiliated
brokerages pay their representatives a flat salary that has
no bearing on their sales production so as not to influence
investment recommendations.
Benefits: It’s natural for customers who have
long trusted their bank with financial matters to feel secure
about investment recommendations from bank-affiliated brokers.
It’s also convenient to be able to conduct both your
banking and investment business all in one stop.
Disadvantages:
- The FDIC does not guarantee securities whether you buy
them in a bank or not.
- Some banks tack on additional fees for mutual funds that
you wouldn’t be charged if you bought the same fund
through another channel.
- Bank-affiliated investing has opened up tricky areas regarding
privacy issues. In 1999, the Gramm-Leach-Bliley Financial
Services Modernization Act was passed, allowing banks to
sell personal and financial information about its customer
base to outside parties, including its affiliated brokerage
firms. This freedom to share information has resulted in
a number of lawsuits, most significantly in the areas where
traditionally risk adverse bank customers have been persuaded
to buy uninsured, high-risk investments and lost money as
a result.
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