WASHINGTON - It might not be as easy as it seems to allow investors to take all of their funds with them when they switch broker/dealers.

Wirehouses are concerned that they face uncertain legal liability when a fund shareholder switches to their firm and has an account that includes obscure funds the wirehouse has not approved for sale, according to a top SEC official. That concern is one obstacle to wirehouses allowing complete portability of funds, said Cindy Fornelli, a senior advisor to Paul Roye, director of the SEC's division of investment management.

Wirehouses are fearful that they might be found to have a duty to make sure that the funds a new investor owns are suitable even though the wirehouse is unfamiliar with the funds, Fornelli said. In addition, wirehouses are wary about the appearance of a conflict of interest if, after examining a fund and deeming it unsuitable, a wirehouse representative recommends selling the existing fund and buying the firm's proprietary funds as a replacement, Fornelli said.

Fornelli made her comments during a panel discussion and interview at "The SEC Speaks," an industry conference held here March 3rd and 4th. Fornelli is working with wirehouses and the NASD in an effort to make it easier for shareholders to keep their mutual funds when they switch from one broker/dealer to another.

Historically, shareholders normally have had to sell funds that only their current broker/dealer sells when they switch to a new firm. Those sales can trigger adverse tax consequences for investors. The SEC is looking into the issue of portability in response to investor complaints, Fornelli said.

Four wirehouses are in the midst of negotiating agreements that will enable shareholders to take the wirehouses' own proprietary funds with them when they switch to another wirehouse, Fornelli said. They include Merrill Lynch & Co., Morgan Stanley Dean Witter, the PaineWebber Group and Prudential Investments, all of New York.

The wirehouses have expressed less concern about suitability with respect to transfers of wirehouse proprietary funds, Fornelli said. They are more fearful about the suitability of funds that are less well known and less widely followed than those funds that the wirehouses and prominent mutual fund companies offer, she said

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