WASHINGTON -- Many investors mistakenly believe that the federal government insures money-market funds sold by banks, according to a survey released yesterday by the Securities and Exchange Commission.
Indeed, two-thirds of the respondents who buy shares in such mutual funds believe that bank money-market funds in particular are federally insured, the survey found. And 28 percent of the 1,000 households polled in the survey believe that all bank mutual funds, not just money-market funds, are insured.
In fact, the Federal Deposit Insurance Corp. program to insure bank deposits and certificates of deposit does not extend to bank mutual funds. Some critics have charged that bank brochures and advertisements have led investors to believe that these funds are covered by the FDIC.
"The fact that 66 percent of bank-fund holders in the survey believe that money-market mutual funds sold through banks are federally insured is of particular concern," SEC Chairman Arthur Levitt said.
The SEC conducted the survey to determine whether investors understand risks associated with mutual funds, which have become popular alternatives to certificates of deposit and Treasury bills, with their low interest rates.
Investors held $1.91 trillion in mutual-fund assets at the end of September, up from $1.53 trillion at the same time in 1992. The 1993 total includes $547.8 billion in money-market funds, down from $554.1 billion last year, according to the Investment Company Institute.
The results of the survey, conducted by the SEC's Office of Economic Analysis, may "provide a starting point from which we can work to make mutual-fund disclosure more informative," Mr. Levitt added.
The SEC survey found that 39 percent of "principal financial decision-makers" who own fund shares think that mutual funds bought through a stockbroker are federally insured; 20 percent of the same group think that mutual funds sold through banks are federally insured. The American Bankers Association was quick to cite this finding as evidence that banks are doing an acceptable job of warning customers that funds are not insured.
"In either case, it's important that consumers have more information," said Donald Ogilvie, executive vice president of the ABA. "This is exactly why the bank regulators have issued disclosure guidelines, and why the ABA and five other bank trade associations are developing recommended practices for the industry regarding bank sales of mutual funds."
Mr. Levitt of the SEC said banks should not use names similar to their own for mutual funds that they sell.
Because bank names have the "imprimatur of stability and protection," banks should not use their names to label their mutual funds, Mr. Levitt said. In addition, he said, banks should sell mutual funds in an area separate from where deposits are taken in branch locations.
The SEC also found that 28 percent of people surveyed think that mutual funds sold by a bank are backed by the assets of the bank, which is not true.