Banks
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.