SEC investor literacy study highlights areas of importance for investors

Mary Schapiro

The Securities and Exchange Commission has issued a staff study mandated by the 2010 Dodd-Frank Act that pertains to what investors want to know about financial and investment products and services.

The study, conducted by the Library of Congress, found that while U.S. retail investors have a poor understanding of financial markets, some subgroups, including Hispanics, the oldest segment of the elderly population, the under-educated, women and African-Americans have an even greater lack of understanding.

The report concludes that “low levels of investor literacy have serious implications for the ability of broad segments of the population to retire comfortably, particularly in an age dominated by defined-contribution retirement plans,” adding that “intensifying efforts to educate investors is essential.”

Additionally, the study identifies investor perceptions and preferences regarding a range of investment disclosures, indicating that investors prefer to receive disclosures before rather than after making an investment, as frequently occurs with investment products available for purchase. With respect to financial intermediaries, areas of importance noted by investors include fees, investment strategy, disciplinary history, and conflicts of interest. With respect to investment disclosures, investors prefer summary documents that list important information about the product.

“Understanding the needs of investors is critical to carrying out the [SEC]’s investor protection mission,” Mary Schapiro, the chairwoman of the SEC, said. “The study provides important data and insights that will assist the [c]omission in its ongoing efforts to help retail investors make informed investing decisions.”

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