"Investing Wisely: Tips From an SEC Insider"
                                
                    Remarks by Arthur Levitt
         Chairman, U.S. Securities & Exchange Commission
                     Investors' Town Meeting
         Union Performing Arts Center -- Tulsa, Oklahoma
                         August 4, 1997


I know that for some of you, this may be the first time you've
had occasion to meet anyone from the Securities and Exchange
Commission.  Maybe no one thought we had many interests in
common.  I'm here today because I think we do.

In the 1990s, more than ever before, the people of America are
investing in America.  There is a startling new economic fact of
life in our nation:  for the first time in history, mutual fund
assets, at about $3 1/2 trillion, now exceed the deposits of
commercial banks.

Through mutual funds and other investments, you are the biggest
holders -- directly and indirectly -- of American stocks and
bonds.  Not the banks, not the insurance companies, not big
businesses -- but people like you.

The massive movement into our securities markets has provided new
opportunities for investors -- and new opportunities for America.
But it's also increased risk -- and it's created confusion and a
greater potential for abuse.

Not all investors are as informed as they should be.  It's a
complicated field, and there are misconceptions even about such
relatively straightforward products as mutual funds.

At the same time, although most people in the securities industry
are honest, some are not -- and they can do enormous damage to
people's lives.

A huge influx of inexperienced investors, and a real potential
for fraud -- it's like tinder and a match.  As SEC Chairman, I've
seen too many people's life savings go up in smoke.

Take the case of Vernon Twyman, the CEO of BeneFund, a
corporation located in Tulsa.  We filed a complaint in April
charging that Twyman raised almost two million dollars from
investors under fraudulent circumstances -- more than a million
dollars of the securities were completely unregistered.  The
complaint also alleges that he misrepresented that BeneFund stock
would soon be listed on Nasdaq; that BeneFund had received
$500,000 in cash from a real estate transaction; and that
investment funds would be used for a marketing campaign that was
expected to boost BeneFund's annual revenue to $50 million.  We
are seeking an accounting for the funds we believe were
misapprpriated as well as civil penalties and the return of any
ill-gotten gains.

Or how about the case of Chistopher Jennings, a broker in the
Tulsa office of Securities America, Inc.  He sold his customers
more than 33,000 shares of stock in a company called United
Payphone Services.  But he somehow forgot to tell these investors
that the company had promised him a kickback for selling these
shares.  Jennings received almost $8,000 for his services.  We
caught up with him last May and kicked him out of the securities
industry.

These are pretty extreme examples.  I want to be absolutely clear
that fraudulent behavior in the securities industry is the
exception and not the rule.  The vast majority of people selling
securities are honest.  But we do have people who walk the fine
line between good sales practices and poor sales practices.  And
frankly, some managers and some firms create a sales culture that
pushes them right to that line.  There are some problems out
there, and it pays to learn how to avoid them.

I've spent a lifetime in the industry.  I've been a broker, a
manager, and I've run a large firm.  I've seen the best and the
worst it has to offer.  I'm here today to share that insider's
view, and to tell you about some practices that are not as well-
known or understood as they should be.

I can't ensure that you'll make money -- no one can guarantee
that -- but I can point out some questions you should be asking,
about financial products and about financial advisors.

I also want to tell you how the SEC is working to forge a
partnership with investors, through town meetings like this, and
through other initiatives, like our toll-free pre-recorded
Investor Information Line: (800) SEC-0330; our plain English
brochures about choosing brokers or mutual funds, available at
the SEC's booth; and our Web site at www.sec.gov, which features
SEC investor alerts, policy announcements, complaint forms, and
rule proposals -- as well as our huge EDGAR database of corporate
information.

I'm here as your advocate, and I hope that by meeting with you
and listening to you I can also do a better job representing your
needs and your voices as individual investors.

The most important investment lesson I can convey to you comes
down to two simple words:  Ask questions.  And you should know
that when you ask your broker a question, you have the support
not only of the SEC, but also of the industry.  No one supports
the idea of educating investors more than the industry.

Problems with uninformed investors can cost firms dearly.  They
would much rather you ask questions before you make an
investment, than have you angry after you make an investment.

What kinds of questions should you ask?  Some are about products,
especially mutual funds, and some are about those who sell them.

Let's start with money market funds.  When I look at some of
their names, I see reassuring words like "trust," "liquid,"
"government," "cash," "U.S.," "ready assets."  Well, I don't care
if a fund is named "The Rock Solid Honestly Safe U.S. Government
Guaranty Trust Savings Fund" -- in any market investment, you
stand a chance of losing your principal.

An informed investor looks beyond the packaging of a fund, and
also sees what's inside.  Some use high-powered investments known
as derivatives -- a household word today, because they've led to
some notorious problems.  Derivatives are not inherently bad or
good -- they're volatile.  Now, gasoline is volatile -- but it's
used every day, to good effect.  Handled appropriately within a
portfolio, derivatives are a high-powered fuel; handled poorly,
they can be more like a Molotov cocktail.  A wise investor will
ask whether a fund holds any derivatives, and if so, how much the
fund could be hurt if they backfired.

Look at the prospectus or the annual report.  Too much money
chases last year's results.  The truth is, past performance is
not a reliable indicator of future performance.  A fund that is
number one in its category this year, or over the past five
years, may be just average next year.

Assuming a fund's investment strategy has remained the same, the
only thing you can predict from past behavior is volatility --
that is, if its value has tended to rise and fall rapidly in the
past, it's likely to do so in the future.  That's about all you
can tell.

Know what kind of sales charge, or "load," you'll pay -- front-
load, back-load, or no-load.  What annual fees?  You should look
at a "load" like a handicap in sports -- a fund with a 3 percent
load is effectively starting out at minus 3 percent against a
comparable no-load fund.

Once you do own a fund, keep track of how it's performing
relative to others of its type -- not just quarter by quarter,
but also over the long term -- and evaluate it against an index
such as the Dow Industrial Average, for stock funds, or the
Salomon bond index, for bond funds.  A journalist once poked fun
at Wall Street indexes by saying they "predicted nine of the last
five recessions."  They're not infallible -- but they're the best
benchmarks we have.  Use them.

So far, I've talked about investments.  But some of the most
important questions have to do with the people recommending the
investments.

I've been a broker, and I've managed brokers, and that experience
has made me one of the profession's most ardent admirers.  I know
the extremely important function they serve, and how well they
generally fulfill that function.

Good brokers are many -- there are lots of elderly investors with
nice estates, and plenty of parents with children through
college, because some broker started them out on the right track
long ago.

Unethical brokers are few.  But you should know how to avoid
them.  In some instances, bad management has pushed them over the
line; in others, they are simply not as well informed as they
should be, and their client is also poorly informed.  But problem
brokers do great damage to confidence in our markets and great
damage to people's lives.  That's why we care so much about the
issue.

The industry supports the SEC's focus on bad brokers because, for
every visible victim of fraud, there's always one that's not seen
-- and that's the firm itself.  One bad broker in a field office
can bring on lawsuits that destroy a firm's balance sheets and
leave its reputation in shreds.  No one, not even the SEC,
detests a dishonest broker more than an honest broker does.

We've approached problem brokers in a number of ways.  We worked
with the industry to produce an ongoing broker education plan.
For the first time ever, brokers are now being trained regularly
on rules, products, and ethics.

We also asked an industry committee to undertake the first-ever
in-depth examination of broker compensation structures, to see if
the way brokers are paid compromises the quality of advice they
give you.  Although much remains to be done, many firms have
already changed their compensation practices as a result of this
committee's report.

We've achieved a great deal.  But there's a limit to what we can
do alone.

Regulation is a blunt instrument, with many unintended
consequences.  Wall Street is the free market, and we prefer to
use market forces.

We'll regulate where warranted -- but many of the areas I want to
address are grey, not black and white, and don't lend themselves
easily to rulemaking.  That's where you can make a difference, by
asking informed questions.

How many people in the room have ever asked their broker how he
gets paid?

Commissions reward a broker for the quantity of his transactions,
not necessarily the quality.  There are other ways to do it.
Some firms offer such alternatives as a flat fee, or a percentage
of the assets under management.  You can ask a broker, How do you
get paid?  Do I have choices about how to pay you?  Does it make
sense for me to pay by the transaction?  Or should I be paying a
flat fee regardless of the number of transactions?

Brokers are sometimes paid more for selling mutual funds than
stocks, or the in-house brand of mutual fund over another.  Over-
the-counter stocks might pay a broker more than those listed on
an exchange.  And any item that comes out of a firm's own
holdings may have an extra incentive attached to it.

In part, this reflects the greater risk a company takes by
holding a certain stock in inventory; or in some cases, they may
simply feel they have too large an inventory of that product.

The extra compensation may encourage the broker to sell that
stock.  That's in his interest.  It may be in the firm's
interest.  But it may or may not be in your interest.

Understanding that makes you a smarter investor.  Ask your
broker, Do you make more if I buy this stock, or bond, or fund,
than if I buy another?  If you weren't making extra money, would
your recommendation still be the same?

How many of you are aware that sales contests are a regular part
of this business?  When a product is sold as part of a contest,
you run the risk that the broker's interest in, say, a trip to
Hawaii may be placed above your interest in a good investment.
The broker goes to Hawaii . . . and Lord knows where you end up.

It's not just the firms themselves that do this.  Some sales
contests are sponsored by a third party who's anxious to move a
product.

Ask your broker, Are you participating in a contest?  Is this
purchase really in my interest or are you trying to reach a
target to win a prize?  Again, contests are not inherently bad,
but they have the potential to focus the broker on something
other than the needs of the human being in front of him.  I'd be
delighted to see contests for the highest number of satisfied
customers, the lowest number of complaints, or the highest return
to a customer.

Here's an easy one:  A broker will readily tell you the price for
which he'll sell a stock to you.  Ask how much he'll pay to buy
the same stock from you.  There's always a "spread" between the
selling and buying price -- shop around for the best price,
negotiate, be a smart investor.  I've known people to spend more
time comparison shopping for paper towels than for investments --
there's no excuse for that.

How many of you have sat down to dinner with your family, only to
be interrupted by a phone call from a salesman who doesn't seem
to understand the meaning of the word "No"?

This practice is known as "cold calling" -- there are actually a
lot of other names for it, but I can't repeat them in polite
company.  Cold calling can be a legitimate sales technique if a
broker is trying to open a door, establish a relationship, or get
to know a client's situation and needs.  New rules have been
written to compel a firm to stop calling you, if you ask to be
put on a "do not call" list, and to prohibit cold calls before 8
AM and after 9 PM.  But you don't need a rule to tell you that
you shouldn't buy securities from someone you've never met, who
calls you with a "hot stock" or "inside tip."  There's a cardinal
rule in investing:  If it sounds too good to be true, it probably
is.

It may not seem polite to ask about a broker's education and
disciplinary history; this has got to change.  Not so long ago,
it wasn't considered polite to ask a doctor for a second opinion.
Just think of what you stand to lose if you don't ask.  Too many
people have lost their life savings because they were too polite
to check their broker's credentials.  Ask: How much training and
experience do you have?  Have you ever been disciplined?  And
remember: you can always check if any broker has a disciplinary
history by calling the National Association of Securities Dealers
at 1 800 289-9999 as well as the Oklahoma Department of
Securities at 280-7700.

Sometimes firms pay a bounty, known as "up-front money," for a
broker to leave one firm and come to theirs.  The broker
routinely asks his clients to come along with him.  I'm not
saying you shouldn't follow your broker to a new firm -- in fact,
if brokers hold their clients' interests supreme, as I'm asking,
it will strengthen the bond between broker and client.  But
remember that the up-front money proves that the move was in his
interest -- you've also got to be convinced it's in yours.

Along with these "up-front" payments, a broker who switches firms
will often receive a higher percentage of the commissions
generated, for example, in the first year.  This provides a
financial incentive to buy and sell for investors' accounts -- so
be wary if your broker calls and encourages you to move with him
and completely restructure your holdings.  Again, his best
interest may be in conflict with your best interest.  You can
ask, Did they pay you to come over?  Do you get anything, or
anything extra, for bringing me along?

Let me note that the report of the Compensation Committee I
mentioned earlier addressed many of the questions I've outlined.
It identified such "best practices" as paying the same commission
for in-house products as for others; paying a portion of
compensation based on client assets, so that brokers receive some
remuneration even if they advise a client to "do nothing";
prohibiting sales contests tied to specific products; and even
eliminating up-front bonuses, or at least disbursing them over a
period of time.

And many firms have already put an end to some of the more
troublesome practices -- as a result of the report, some firms
have eliminated extra compensation for selling in-house products.
Others have eliminated accelerated payouts for newly recruited
brokers and put an end to product-specific sales contests.

As for up-front bonuses, the progress we made initially seems to
have eroded.  I'm disappointed and will continue to do all I can
to discourage their use.

But the truth is, practices are changing -- and if you ask
questions, they'll change faster.

The bottom line of all of these questions is that a broker has a
responsibility to her client.  A broker should be expected to
hold the client's interests above all others -- above her own,
above her firm's, and above the industry's -- and most brokers do
so.  That's my definition of professionalism.

The SEC can and will demand that standards of practice in the
industry be higher.  But if firms hear that same demand also
coming from you as investors, change will come sooner.  I
remember from my years in the industry that the only people who
got our attention faster than our regulators were our customers.

And so I'm here today, not just to offer help, but to ask for it;
not just to give advice, but to receive it; not just to speak,
but to listen.  I want to hear from you about the state of our
securities markets, and I want your help in making them better.
For when all is said and done, the SEC is not about this rule or
that regulation -- it's about hardworking people seeking a better
life -- buying that new home, sending the children to college,
taking that much-needed vacation, enjoying a decent retirement.
It's about the promise of America.

Help America fulfill that promise: become an educated investor.

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