Levitt to Investors: Be Assertive

WASHINGTON (AP) â€” Last words to investors from the government's top securities regulator: assert yourself, don't get caught up in mutual-fund performance hype, check out your broker and how he

Wednesday, January 17th 2001, 12:00 am

By: News On 6

WASHINGTON (AP) â€” Last words to investors from the government's top securities regulator: assert yourself, don't get caught up in mutual-fund performance hype, check out your broker and how he or she gets paid.

Arthur Levitt, chairman of the Securities and Exchange Commission appointed by President Clinton, is nearing the end of his eight-year tenure â€” the longest in the SEC's history. During that time, he has held ``town hall meetings'' for investors around the country. On Tuesday night, Levitt held his 43rd and final one, in Philadelphia.

``Your broker could be on his or her way to Hawaii right now because you bought the (securities) product of the month,'' Levitt said in remarks prepared for a speech to the gathering at Philadelphia's historic Arch Street Meeting House.

That's because some brokers get paid more for selling one product versus another, such as mutual funds vs. stocks or the brokerage firm's own brand of mutual funds vs. other funds, Levitt explained. He insisted that investors have a right to a broker who works in their best interest and to financial advice that isn't tainted by salesmanship, as well as an obligation to find out how a broker gets paid.

Many brokers earn lucrative commissions on the quantity of their customers' transactions. Others are paid a flat fee or a percentage of their customers' assets they are managing.

Investors also should find out how their trading orders are handled, Levitt said. When people place a buy or sell order, their broker can decide whether to send it to an exchange such as the New York Stock Exchange or the Nasdaq Stock Market, or to a rival electronic market known as an electronic communications network, or even to execute the trade with their brokerage firm's own supply of stocks.

During his long term, Levitt has earned a reputation for trying to protect and help educate millions of Main Street investors at the same time he policed Wall Street. He pushed, for example, for new regulations last year requiring companies to disclose information to the public at the same time it is given to Wall Street analysts and big investors.

At the town hall-style meetings, which he began at a time when the bull market was roaring and millions of new investors were pouring into it, he made speeches and answered peoples' questions about investments and finance.

Levitt, 69, announced in December that he was leaving the government next month. President-elect Bush has not yet nominated a successor.

In Tuesday night's address, he also reminded investors to be wary of mutual-fund performance hype, since some funds may have scored huge returns early on by investing in companies successfully going public but not done so well over the longer term.

``Research and know what you are investing in,'' he said.

Levitt noted that the SEC recently adopted new rules aimed at preventing investors from being misled by deceptive names of mutual funds. Now, for instance, funds with the words ``health care'' in them are required to invest at least 80 percent of their assets in health-care company stocks.

Levitt also urged:

â€”Investors have a right to a timely transfer, taking days not months, of their investment portfolio if they desire it. Ask your broker or mutual fund adviser what investments can be transferred to new accounts and how long it would take.

â€”Avoid get-rich-quick schemes, especially on the Internet.

â€”Be wary of so-called ``brokered'' certificates of deposit, which have quite different properties from the traditional CDs that people have bought for years at their local banks. Not understanding those differences can lead to significant financial losses, and the SEC recently has gotten a flood of complaints, many of them from elderly people.

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On the Net:

Securities and Exchange Commission: http://www.sec.gov