Mutual Fund Boilerplate March 20, 1997March 25, 2012 “Mr. T: I have before me an application for a mutual fund. It says, ‘Neither the Fund nor its transfer agent will be liable for any loss or expense for acting upon written, telephone or computer on-line access instructions reasonably believed to be genuine and in accordance with the procedures described in the Prospectus.’ In these days of identity theft and computers loaded with personal information about individuals, it doesn’t seem smart to sign such an application. What do you think?” — Bruce Well, Bruce, far be it from me to say it is smart and then have you be the one guy in a million (or some large number, anyway) who gets shafted and has to see whether boilerplates like that would stand up in court. I forwarded your query to Fidelity for their opinion, and here’s what I got back: “The SEC permits fund companies to disclaim liabilities [this way]. But if the fund company elects to do so (as Fidelity does), disclosure is required. At Fidelity, we allow telephone exchange transactions and we disclaim liability for this in both fund prospectuses and account applications. We would be happy to send these documents to you if you’d like to see them. We believe that we have reasonable procedures in place designed to verify the identity of a caller. He or she must provide certain personal information in order to access his/her account. If the investor prefers not to have the ability to exchange over the telephone, he/she can call Fidelity to block this service.” There’s no question, an awful lot of trust is involved in today’s modern financial world. We take it on faith that our banks and brokerage firms won’t somehow scramble all their records, and ours. We take it on faith that a company that pays no dividends will nonetheless be perceived by others to have value, because it one day could pay dividends (or buy back its stock), and that it is thus prudent to part with our hard-earned money for an electronic blip representing our tiny share of ownership in those nonexistent dividends. We take it on faith that a $20 bill is as good as the gold in Fort Knox that no longer stands behind it. My own feeling is that if you deal with reputable companies, keep your receipts and statements (and check them for accuracy promptly as they arrive in the mail), you have little to worry about. It’s highly unlikely someone would go in and start switching your money from one mutual fund to another — to what end? Of course, the real concern is that they might move the money from your account to theirs. But in that case, in addition to having the broker or mutual fund to go after, there would be a criminal case against whoever got your money. And if someone is intent on stealing from you, they can probably mail in a forged, notarized document instructing withdrawal of your funds just about as easily as they can commit fraud over the phone.