What Will You Do When the Bear Comes

It's 1:00 p.m. on a Tuesday afternoon and the market has dropped 300 points. Phones all over the bank are tied up with panicked mutual fund and securities investors who want to know what's going on and what the bank is doing for them. Do feel calm and in control, or do wish were better equipped to deal with this problem? Maybe think this scenario is unrealistic, because most bank mutual fund customers are in bond funds and most have a long-term investment horizon. Those in equity funds theoretically understand the risks they are taking. Yet during a crisis, people can get swept into general hysteria and forget logic. People don't always act rationally when their portfolio drops 15-20% in one day, says E.G. Trip Purcell, vice-president and manager of marketing and development at $8 billion Branch Banking and Trust, Wilson, N.C. Banks are doing a good job of disclosure, but if have a market crash, it's got nothing to do with real dollars and cents, it's an emotional response, points out Daniel D. Tierney, vice-president, sales manager, and senior private-banking officer at First of America Bank-Rockford (Ill.), an $870 million affiliate of First of America Corp. People aren't going to say, 'Oh, yes, I'm sorry, I remember, I signed a piece of paper that said this could happen.' Tierney is afraid people will call the customer service representative they deal with most, having found their investment representative's line busy, and ask the CSR questions he or she doesn't know the answer to, or give sell orders. The market may never take a nose dive. if it does, just one confused or unhappy investor could create a public relations problem, and it makes sense to try to prepare for and prevent that. The following suggestions are from people with banking and brokerage experience. 1. Put people in the right investments to begin with. If you've got a customer in the right product, when the market falls, can say to them, 'you bought this investment to produce income, and it's still doing that,' notes Purcell. Denis P. Kelleher, chairman and CEO of Wall Street Investor Services, New York, refers to what he calls a mantle of trust consumers put on their bankers, which gives banks more responsibility for their customers' investments than brokers have. In a bank program, should have better product screening, he says. (ABA has endorsed Wall Street Investor to provide investment programs for its members.) There are many principles that have been well established that people should be following, Kelleher points out. People should have enough money in the bank for six months' household expenses. Certainly at no time should they put all their eggs in one basket. 2. Before the sale, explain that the value of the investments may fluctuate and that they're not FDIC insured. Beyond the required disclosures, you have to explain the basic principles of investing, says Purcell. He warns that should keep it simple. If start talking about duration or complexities of the bond market, their eyes glaze over. Often investment professionals try to make things complicated to give themselves an aura of importance, says Kelleher. But we should be talking about very basic stuff. The first rule is to try not to lose any money and the second rule is to remember the first rule. At the first meeting with a client, Kelleher says he would point out the long-term benefits of investing. For example, he would show that if a person had invested money the day before the October '87 crash and stuck with their investments, they would be much better off than if they had sold out. Tierney at First of America believes bank-based investment reps need to teach the customer how to invest wisely. A customer might say, 'I'm not concerned about retirement because I'm going to get Social Security,' he says. …