NDIP: Don't Go From Lobby to Lawsuit!

If your bank offers alternative products, such as mutual funds, you need to provide training for staff involved in the sale of these products. But training needs to include the branch system's front line staff. They have the first customer contact. Customers will approach branch staff with their questions - and expect answers. After all, if the customer thinks of a mutual fund as a bank product, they expect the bank staff to be able to answer questions about it. And this is where the difficulties begin.

Bank staff - especially front line staff - must know how to describe non-deposit products clearly. They need to be able to communicate that there are risks attached but still support the effort to sell. After all, that's the corporate goal.

Here are some points to cover in your training, and some suggestions on how to present them.

What's all the fuss about?

Banks and the FDIC have worked since the depression to create faith and confidence in the banking system. It worked.

Now people believe that anything they do in banks is "safe." So when you explain that there is a risk of loss of principal and that a mutual fund is not a bank deposit, they don't hear you.

There have already lawsuits by customers who claim that they did not understand the risks. We need to avoid this kind of problem.

Deposits and non-deposits: What's the difference?

Deposits are insured by the FDIC up to $100,000 per customer. They earn a rate of return that is set by the bank. It may be fixed or variable.

Investments, such as mutual funds, are NOT insured by the FDIC. The purchaser of this product may lose some of their principal but they may also make a greater return than on a deposit. If the market drops, they risk loss of principal as well as the possibility of not earning a return on their investment.

How to make referrals
When a customer asks about a non-deposit investment product, send them to the NDIP sales area or representative. "Our bank has an arrangement with Modern Mutual Funds. Their representative, Susan Jones, sits over there, on the other side of the lobby. She can explain all about their products. If you are interested in a bank savings product such as certificate of deposit, our customer service representatives can help you. They have the FDIC sign on their desk. It looks like John Jones is free right now to answer any questions you have about savings accounts."

Do not endorse the product or make statements that sound like recommendations or guarantees.

Be careful to distinguish between bank products and investment products.

What to say
Say (over and over) that the product is NOT a bank product and is NOT insured by the FDIC. In fact, it is NOT insured at all. It is a risk product just like any investment in the stock market or a mutual fund.

Purchasing a mutual fund in the bank is no different from purchasing it from a broker. You get the same product and take the same risk. The bank is simply a convenient place to do this.What not to say

Never say that the investment product is "safe" or a "sure thing." It isn't.

Never say the bank chose the best funds.

Never say that investments are better than a savings account. If you mention that the investment could have a higher return than a CD, explain (before you take another breath) that the investor/ customer could lose some or all of their principal.

How to describe products
Be very careful when describing bank and NDIP products. Make a habit of always saying what is a bank product as well as saying what is not. For example, "This 6-month certificate of deposit is a bank savings account and pays an APY of __%." "College-eaze" is an investment product, not a bank product, and your funds in that are not insured by the FDIC. Unlike a bank product, you could actually lose money."

When and how to mention FDIC deposit insurance
Mention FDIC deposit insurance when you are discussing a savings account, MMDAs, or certificates of deposit.

Suitability of products
Suitability involves making sure that the product is appropriate for the customer - that the level of risk is one that this customer can afford to take, or whether the customer will need access to funds, without penalty.

What if the customer asks for the "best" product?
There is no such thing as "best". What is best depends on the customer, their situation, their needs, and their expectations. Refer them to someone who can explain the advantages and risks of each product.

Copyright © 1998 Compliance Action. Originally appeared in Compliance Action, Vol. 3, No. 3, 3/98