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4000 - Advisory Opinions

Sale of Securities and Mutual Funds on Bank Premises


December 1, 1986

Gerald F. Lamberti, Regional Counsel

This is in response to your letter of September 26, 1986, concerning the Glass-Steagall Act and the possibility of entering into an arrangement with a bank or banks in *** concerning the sale of securities and mutual funds. At the outset, I apologize for the delay in responding to your letter. A heavy volume of other work coupled with limited resources occasioned the delay.

Your description of the proposal contemplated is couched in fairly general terms and does not reference any specific arrangement with a particular bank or banks. Accordingly, the response that follows will also be somewhat general.

You recite a number of factors in describing the arrangement in your letter, including: that you would be identified as a certified financial planner who is not an employee of the bank; that you would be in the bank one day a week and would use office space in the bank at no cost to you; that bank personnel would be prohibited from giving advice on any securities you offer; that it would be explained that the bank does not endorse any of your products nor are any of the investments offered by you insured by the FDIC; that you would handle all buy and sell transactions; that you would either split commissions with the bank, or alternatively compensate the bank with a finder's fee or pay for the use of office space; and that you hope to have letters of introduction sent out by the bank on your behalf and to conduct seminars for the public.

The primary concern of the FDIC with any such arrangement would be its possible effect on the safety and soundness of a bank concerned and the protection of its depositors. From reading your letter, I am not certain whether you are proposing to conduct such activity as a subsidiary or affiliate of the bank, or in some manner independent of the bank. If you are intending to operate as an affiliate or subsidiary of a bank, section 337.4 of the FDIC's rules and regulations would apply. (A copy of section 337.4 is enclosed for your information.) If you are intending to operate independent of a bank but sharing some of the bank's space, the arrangement must be such that the securities transactions handled by you are neither in fact nor in appearance part and parcel of the bank's own activity. Such matters as the degree of control exercised over your operation by the bank, the sharing of commissions or finder's fees, the failure to make absolutely clear that any transactions executed by you are not considered deposits nor insured by the FDIC, and any other matter which creates, expressly or impliedly, the impression that your operation might be part of the bank's activity would all be taken into consideration in weighing whether or not your proposal could affect the safety and soundness of the bank and its depositors. Under the circumstances, I cannot be any more definitive in my response to your letter. However, in the event you have a concrete proposal with a specific bank or specific banks, I would urge you to submit it to this office for review and, since this is an emerging area in bank regulation, probably for review by our Washington Office as well. You may also wish to consider consulting with legal counsel before proffering any such proposal.

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