Investment Products

Investment products such as mutual funds, annuities, stocks and bonds are appropriate for many individuals. If you are interested in any of these products, we can help you. InvestNet® CorporationMellon's brokerage affiliate-can make a wide variety of investment options available to you.

We want you to understand a few basic facts about investment products, wherever you buy them:

These products
are not FDIC-
insured.

These products
involve invest-
ment risks,
including the
possible loss of
principal-you
may get back
more or less

than you origi

nally invested.

We would like to help you with your investment needs. Please ask us.

80-2220-94-13

Mr. McGUINN. When the customer would continue on into the branch, he or she really has a choice. If he or she went up to one of the tellers and inquired about a noninsured investment product, our tellers are strictly prohibited from either making any sales, of course, or even more importantly rendering any advice, so they would refer that person over to our platform area where they would talk to a customer service representative. That customer service representative, if the person knew the mutual fund that they wanted to buy would help them open an account with our InvestNet which is a broker-dealer affiliate of Mellon Bank. By the way, that is registered with the SEC and it is a member of the NASD. Then they could go ahead and purchase that mutual fund without any advice through InvestNet.

If they wanted some investment advice, we have professional investment consultants who are, again, licensed and trained consistent with NASD rules, and they are also employees not of Mellon Bank but rather of InvestNet, which is that SEC-registered brokerdealer.

We have about 60 PIC's, as we call them, and if a PIC happened to be in the branch, that would be terrific and an appointment could be set up. If not, an appointment would be set up with that PIC and the PIC would meet with the person either at their home or office or in that or some other branch which might be convenient.

Mr. DINGELL. Mr. McGuinn, just to help us, what is a PIC?

Mr. MCGUINN. I am sorry, I thought I said personal investment consultant first, excuse me.

Mr. DINGELL. OK, because we got a new word and I thought, oh boy, what is this. Go ahead.

Mr. MCGUINN. It is an affectionate acronym for us. But these personal investment consultants, or PIC's, are trained and licensed as part of the NASD and employees of InvestNet which is very important for us.

Then when they met with the PIC, if they were seeking investment advice, the PIC would go through a complete suitability analysis with that particular customer, talking about their financial profile, their investment needs, their appetite for risk, and so forth, and based on that suitability analysis which the customer would be asked to review and then sign-by the way, in that suitability analysis, in addition to all the suitability issues, all the disclosures are, again, repeated that I just mentioned, so the customer would then be asked to sign both the suitability analysis as well as acknowledgment of those disclosures. At that point, the PIC would go ahead and render the advice.

In our branches, by the way, we also have this kind of sign which is very similar to what you just saw on the decal on the doors to all of our branches, which also are at both the teller windows as well as on the customer service representative desks. If an InvestNet PIC should meet in the branch with one of these customers, it actually would be designated with a sign that says "InvestNet" and include these disclosures as well.

So any customer, to summarize, who really comes into our branches and seeks to buy a mutual fund will probably encounter,

either orally or in writing, three to five times, this complete panoply of disclosures.

Mr. DINGELL. Now, Mr. Stein-the Chair is going to withhold. Does someone from the committee have questions?

Mr. SCHAEFER. Thank you, Mr. Chairman, and I appreciate the gentleman being here today. I know you had a long wait. We had some important things to get out of the way first, as you well knew. I also am pleased that you are supporting 3447. For the chairman's benefit, I am cosponsoring this particular bill today myself because I think it is a necessary guarantee and guard that we have to have in light of the Keating, American Continental situation.

Mr. DINGELL. By the way, would the gentleman yield?

Mr. SCHAEFER. Yes.

Mr. DINGELL. The Chair would like to thank the gentleman for those comments.

Mr. SCHAEFER. I am pleased to do it, sir.

All right. Now I am understanding that you are willing then to embrace the safeguards that are outlined in 3447. As I understand from your comments, Mr. McGuinn, and Mr. Cahouet said in his testimony that the Dreyfus name is the one that is going to be used, and it is not going to be Mellon and Dreyfus, it is Dreyfus on the mutual funds, et cetera. Am I correct?

Mr. CAHOUET. Mr. Congressman, you are correct in regard to the Dreyfus mutual funds. We also have a family of funds called the Laurel Funds, and we will continue to use the Laurel Fund. But in regard to the Dreyfus fund, you will not see Mellon Bank's name attached to the Dreyfus fund. You will not see Mellon's logo attached to the Dreyfus fund. The Dreyfus funds will be marketed completely separately, and that will be the way it will be done.

Mr. SCHAEFER. Yes. Of course, that was one of the big problems we had with Keating and the other two organizations.

The same is true then, as I understand, Mr. McGuinn, with the logos?

Mr. MCGUINN. Yes, sir. But I should

Mr. SCHAEFER. There is a difference between a Mellon logo and a Dreyfus logo?

Mr. McGUINN. Yes, sir, there is. But I should explain when, as Mr. Cahouet mentioned, that we sell a variety of mutual funds now through the PIC's as I was described.

Mr. SCHAEFER. Yes, sir. I understand.

Mr. McGUINN. But even before we had discussions with Dreyfus, one of the funds that we sell is a Dreyfus fund with a number of other funds, not only our Laurel and Boston Company funds, and it is the Dreyfus funds that would be sold separately by Dreyfus that was referred to.

Mr. SCHAEFER. What about the disclosures that inform the customers that the funds, mutual funds, sold by the bank are not FDIC insured, what procedures are you going to be adopting to show adequate disclosures that these are not FDIC insured?

Anyone who would like to answer?

Mr. MCGUINN. If these mutual funds are being sold through our PIC's because people want investment advice and the meetings are taking place in the branches, it would be the whole series of disclo

sures I mentioned before, from the door to the teller to the customer service representative area to the written forms which are reviewed with the customer and actually acknowledged in writing.

If people come into our InvestNet subsidiary or order by the phone, there is no investment advice given, but the acknowledgements that they receive indicate that none of these investment products are either FDIC insured or those series of disclosures which I mentioned before.

Mr. CAHOUET. If I could add, Congressman, we currently are selling through the branches where we are providing investment advice, we are currently selling today 30 different funds. It happens that one of the funds today is a Dreyfus fund, but we have a full range of funds in order to accommodate the various needs of our

customer.

Mr. SCHAEFER. I fully understand that. I know that it is not just Dreyfus. Tell me about suitability standards, how are you going to assure that the bank personnel recommend a suitable investment?

Mr. McGUINN. We have, first of all, training for all of our PIC's, if I may continue to refer to them that way, and remember that, again, these are licensed under the NASD rules. We prefer that they all have a Series 7 license, some have a Series 6. But in order for anybody to be a PIC, they must be licensed. Again, remember they are employees of InvestNet, which is an SEC registered company.

We have, in addition to all that licensing and training procedures, an actual client profile and asset allocation worksheet which is printed, and then we ask that our PIC's work through with the clients, both in order to get the information from them and also to make sure that they give the necessary disclosures to them, and then to have the customer acknowledge those in writing.

By the way, we follow-up on many of these, too. I mean, all of these suitability analyses are checked by principals of InvestNet. We follow-up with customer interviews to make sure that they did receive the various disclosures and understood them, importantly, and we do a number of customer surveys and even mystery shopping, so that this really is a full-cycle process.

Mr. SCHAEFER. Is there any chance I know it is probably a hypothetical-that a licensed investment counselor, seller, would somewhere along the line be a teller?

Mr. MCGUINN. No, sir. I mean maybe in the past history.

Mr. SCHAEFER. I know the money is not there, I understand that. That is a big difference.

Mr. McGUINN. No, an InvestNet licensed PIC could not also be a teller. In fact, our tellers are strictly prohibited from rendering any investment advice or selling any mutual funds or other securities.

Mr. CAHOUET. You might mention the compensation arrangement, too.

Mr. SCHAEFER. Yes, I was going to get to that anyway.

Mr. MCGUINN. Well, our PIC's are compensated both with a base salary as well as a compensation which is less than the base salary, and the commission compensation is less than the base salary and is also capped.

Mr. SCHAEFER. Have you ever had any-well, you wouldn't have had. We try to keep thinking of all these things that are going to put a stop to any collusion in the past, but what about the possibility of a teller working with one of your PIC's out there and getting reverse compensation for sending somebody over there, any chance of something like that happening? I don't know how we could stop

it.

Mr. MCGUINN. Well, we certainly in our training and in all of our procedures seek to prevent that, and I can assure you, though, that our tellers who may refer, as I pointed out before, customers over to a customer service representative who could set up an appointment with a PIC, but our tellers are not in any way compensated for sales of mutual funds.

Mr. SCHAEFER. But there are cases probably where a former teller could become a licensed PIC?

Mr. MCGUINN. Yes, sir, if they go through the training and then receive the license.

Mr. SCHAEFER. Mr. Chairman, I will yield back for right now and see what I have else for questions.

Mr. DINGELL. The Chair thanks the gentleman.

Mr. Stein, you will recall the questioning of Mr. Cahouet. In addition to the sales in the bank lobby, Dreyfus will be, of course, continuing to sell mutual funds through cold calls over the phone, advertisement, brochures, and so forth. What disclosures will be incorporated into these marketing techniques to ensure that potential purchasers of Dreyfus mutual funds won't infer Mellon Bank protections because either they are, one, independently knowing that Dreyfus is now part of Mellon Bank or, two, because your sales/ purchase persons in some way might have unfortunately made the Mellon-Dreyfus link?

Mr. STEIN. Mr. Chairman, would it be all right to have Mr. DiMartino address that question?

Mr. DIMARTINO. Mr. Chairman, in the statement of policy that was released or submitted to the committee, there was an outline of the selling mechanism that would take place within the banking system and the banking premises.

With respect to the selling mechanism that Dreyfus has, because of its own brand name, we feel that the NASD and the SEC presently cover our selling mechanisms, and if there were any concerns about that that would come from any of the regulators, we would address those concerns when they would come from the regulators. Mr. DINGELL. Thank you.

Mr. Stein, let's assume one of my constituents in Michigan, again dear old Widow Goodbody has watched CNN or read the Wall Street Journal, now if and when the deal here that we are discussing goes through, the Widow Goodbody will know that Dreyfus mutual funds are now a subsidiary of the Mellon Bank. Based on the information we heard yesterday, when people make the connection between a bank and a mutual fund company, they tend to believe that the protections of the bank extend to mutual funds.

Now, on whom is the burden in the time subsequent to the Mellon-Dreyfus merger to warn any and all potential customers through advertisements, brochures, or other solicitations that Drey