What to do before telephone overload hits your mutual fund
Among their other attributes, mutual funds - especially the no-load variety - are supposed to make it easy to switch from one investment to another. If the stock market is going down, you can, they say, make a phone call and switch to a bond fund or a money market fund. Or, if stock prices have finished their slide, you can switch out of a money fund and get into a stock fund at bargain prices. But what if you can't get through to the fund because every other investor is calling, too, and you get hours of busy signals? Or what if you bought a load fund from a broker, but his phone is also busy?
A lot of mutual fund investors got a quick lesson in those ``what if's'' on Oct. 19 when the funds were overloaded with calls.
Now, some of the funds that had telephone overload problems are taking steps to make sure - they hope - those problems don't happen again. But there are still some things investors can do to help themselves if there's ever another day like Oct. 19.
Since then, says Rab Bertelsen, vice-president at Fidelity Investments in Boston, the company has added new equipment and given several of its employees additional training so they can help answer phones when a flood of calls starts. These ``cross-trained'' employees can very quickly increase the number of people answering phones at Fidelity by 50 percent, Mr. Bertelsen says. After the crisis is over, they will return to their regular jobs.
A number of other funds, including Vanguard in Valley Forge, Pa. and T.Rowe Price in Baltimore have cross-trained employees to give them more strength in a pinch, says Laura Berger, executive director of the No-Load Mutual Fund Association.
``The smaller funds really didn't have a problem,'' Ms. Berger recalls. ``It was the larger funds, like Fidelity, Vanguard, and T.Rowe Price that had promoted switching that were hit.''
Even those funds that experienced overloads did the best they could and acted responsibly, says Gerald Perritt, editor of the Mutual Fund Letter, a newsletter in Chicago.
``I think the fund industry came out of this admirably, when you think about some of the things that could have happened,'' he says. ``They could have made people write a letter and send them their money in 30 days. They could have sent stock certificates instead of money. They can do that, according to their prospectuses, but they didn't.''
``I called up during the week and I was able to get through,'' says Eric Kobren, who edits ``Insight,'' a Needham, Mass. newsletter that only follows Fidelity's funds. ``You needed an automatic dialing machine, that's all. As long as you were willing to hold on, even though you got a tape recording at first, you were OK. But people would get frustrated after two or three minutes and then they'd hang up, and then they're right back at the bottom of the queue again.''
While most people probably don't have an automatic dialing machine, some of the newer telephones do have automatic redial buttons. Then, at least you don't have to keep punching the same numbers over and over.
There are other steps you can take now, Berger says. One is to write a letter ahead of time instructing the fund or its transfer agent to sell all or a certain number of fund shares. The letter should be signed by you, and an officer of a bank or a brokerage must add his or her ``signature guarantee'' to it.
Keep the letter in a safe, but handy place so if there's another market dive, you can immediately send it to the fund via overnight mail or express service. Have it registered so somebody at the fund or the transfer agent has to sign for it when it arrives. Your instructions should be carried out at that day's price.
If you still want to make switches by phone and if the fund has a 24-hour service, call early in the morning, like 5 a.m.
Find out ahead of time if the company with a toll-free number has another number - even if it's not toll-free - that might get you through faster. Or, there might be numbers meant primarily for customers in other states that you can use. Try them before you need them.