fee schedules are to be believed. Other banks have said, "no," and I imagine the great majority of trust departments are still grappling with the problem. Most of us will find it impossible to turn our backs on small accounts. Impossible for practical reasons, and unacceptable for philosophical ones. To be practical, how can we serve only the wealthy man and not his family? They are inseparable. More imporantly, it would be a fatal mistake for the trust field to confine itself to a limited group of major customers, whether corporate or individual. We are in a service business, and there is a wide demand for our investment services. The great bulk of the investment wealth of our country comes in small portions of less than $100,000. If we turn out backs on accounts of less than $100,000, we will exclude four out of five of our prospects. DISPERSION OF WEALTH MILLIONS OF PEOPLE (Estates above $60,000) 3.50 If there were no way to serve small accounts without loss, we would indeed end up catering only to the rich. This would be an unwelcome role for us to play, and an unpromising one. But there is a way, if we would only focus on it. Commingling is the answer. And the relief would be substantial. We calculate that common trust funds reduce our costs at least 50% and sometimes 75%, depending on how efficiently the trusts were being administered before their entry into the CTF. This far exceeds the economies effected in our "austere" program which dropped investment management costs from 173/100ths to 112/100ths, or 35%. Savings of 50% or more in the administration of small accounts would make our investment operation viable and would put our services to the public on a sound and profitable basis. We might even be able to reduce some of our fees and surely to stabilize others--the very ones which are now approaching the upper limits of customer acceptance. I recommend that we take our battle-weary commingling legislation back to the drawing board, and tackle separately the two purposes it was intended to serve. Our most urgent need is for relief from our small account problem. These are the accounts already in our care, and those which come to us in the normal course of our business. This somewhat limited commingling privilege could be precisely defined. Separately, and perhaps by a different means, those who wish to could seek enabling legislation to permit the operation of open end mutual funds. This is an appropriate goal for certain of the strongest trust departments, but their number is limited. To repeat my earlier statement, the public would benefit from their entry into the mutual fund field, bringing to it their proven economies of operation and their sense of fiduciary responsibility. However, the years are passing, and the achievement of both goals in a single legislative and regulatory package seems remote. APPENDIX A Descriptions of dividend reinvest- Dividend reinvestment plans Nine of the eleven member banks of The New York Clearing House Association offer dividend reinvestment plans, a bank agency service which enables participants to invest regularly modest amounts on an economically feasible basis. The nine banks provide dividend reinvestment services for over 300 companies, and there are over 850,000 participating shareholders. Under each dividend reinvestment plan, the bank acts as agent for a company's participating shareholders in receiving and reinvesting dividends in additional shares of the company's common stock. For most plans, the agent bank purchases shares in the open market. In those few plans in which newly-issued shares are purchased directly from the company, the shares offered under the plan (as opposed to the plan itself) are registered under the Securities Act of 1933. Most dividend reinvestment plans also afford the opportunity to participating shareholders to make periodic cash payments for investment in the company's shares. Several plans also permit the participants to invest interest on the company's Appendix A APPENDIX A (continued) bonds and dividends on the company's preferred stock in the company's common stock. The terms of the plans provide that the dividends must be reinvested within 30 days after receipt by the bank, and in actual practice the investment normally occurs within one-half that time. On a designated purchase date all the dividends of participants in a plan are combined and used to purchase the maximum amount of stock. Purchased shares are normally held by the bank as custodian but will be forwarded to a participant upon request. Under most plans the service fees of the agent bank and brokerage commissions are deducted from the amounts available for investment. The service fees range from 4% to 5% of the amount invested at the time of each purchase, with a maximum of from $2.00 to $2.50. Brokerage commissions are estimated to average approximately 1% of the amount invested through the plans. Under approximately 5% of the plans, the company pays both the brokerage commissions and service fees. Each participant in a dividend reinvestment plan receives a statement following the making of each investment for his account (either quarterly or more frequently if additional cash is invested) indicating cash received, shares purchased and total shares held for the shareholder. All participants (including those withdrawing before the end of the year) receive a year-end or termination statement. Appendix A APPENDIX A (continued) A customer may terminate participation in a dividend reinvest ment plan at any time. Upon termination, the customer has the option of either receiving the full shares in his account or directing the bank to sell his shares at a nominal service charge and deliver the net proceeds. Automatic investment services Automatic investment services ("AIS"), which are presently offered by only one member of The New York Clearing House, provide an opportunity for checking account customers of a bank to invest in common stock through automatic monthly deductions from their accounts. AIS can be utilized only by persons who maintain a checking account with the bank, although the account may be opened simultaneously with participation in AIS. AIS, similarly to dividend reinvestment plans, provides an economical and convenient method by which the small investor can invest modest amounts on a regular basis. The principle of AIS does not differ from that of agency services for securities transactions which have been offered by banks for over 75 years, nor does it differ, except for the form of investment, from bank programs involving automatic monthly transfers from a customer's checking account into his savings account. An investor participating in AIS chooses one or more stocks from a list of those corporations which are among the 25 largest included in the Standard & Poor's 425 Industrial Index of Common Stocks (based on Appendix A |