Just How Much Education Does the Typical Investor Really Need?
Source: FINRA 2019 Annual Conference, May. 15, 2019
RITA RAAGAS DE RAMOS, SPECIAL PROJECTS MANAGER, FAIQ: Hi, I’m Rita Raagas De Ramos from Financial Advisor IQ and with me is Gerri Walsh, senior vice president of investor education at Finra.
Gerri, you’re in charge of investor education at Finra. Can you tell me how much education does the typical retail investor really need? And I’m asking this because some advisors tell us that retail investors may be more sophisticated than we think.
GERRI WALSH, SENIOR VICE-PRESIDENT, INVESTOR EDUCATION: They may be more sophisticated than we think, but there are a lot of people that aren’t invested in the market. So, through the Finra Investor Education Foundation and through the outreach work that we do at Finra, we really have a broad spectrum of investor education initiatives.
All investors really need to understand are a couple of key concepts: what types of products they’re considering, what the costs are, what the risks are. But [they] also [need to know] what their own tolerance for risk is, and that often ties into people’s goals. A lot of people invest impulsively, so really more than education, they need emotional regulation, and that’s something that investor education, whether it comes from advisors or it comes from sources like Finra, can provide.
RITA RAAGAS DE RAMOS: What should broker-dealers do more in order to ensure that their brokers are working aboveboard and are not putting their clients in harm’s way?
GERRI WALSH: Most brokers are honest, hardworking people. And they are putting their investors’ interest first, their customers’ interests first. And that’s a positive. With Finra regulation, the firms and the individual brokers themselves are subject to licensing requirements. The individuals are subject to continuing education requirements. So you really have a robust regulatory system that does protect the investors. There are a couple of bad apples and we have ways to deal with those.
RITA RAAGAS DE RAMOS: We have the pending SEC regulation best interest and Finra already has its suitability rules. But some say that, even with all these rules, if a individual really intends to defraud or harm, they’re not really fail-safe guarantees to protect the investor. What, then, should an investor do to make sure that they protect themselves? What are the red flags they should be watching out for and what steps should they take to ensure that they have at least that first layer of protection?
GERRI WALSH: Absolutely. The most important thing that an investor can do is ask a lot of questions, especially if somebody is recommending that you pursue a particular strategy or that you consider a particular product. Make sure you understand what the fees are, the costs are, the risks are. How liquid is the investment?
The truth is that most of the harm happens outside the realm of regulation. Finra-registered broker-dealers and SEC and state-regulated investment advisors do have to operate under strictures. And so one of the best things that an investor can do to protect themselves is to make sure that they’re dealing with somebody who’s licensed. And don’t just ask, “Are you licensed?” because a scammer will say, “Why, sure.” Instead, use BrokerCheck. That’s the best piece of advice that we can give investors. It’s the first place that they can go to find out whether the individual they’re dealing with is licensed. And whether they have a history of complaints.
RITA RAAGAS DE RAMOS: That seems like a very easy step, but do a lot of people do it? Do they check? Do they ask those questions?
GERRI WALSH: Not enough people do it and that’s why we try to get the word out about it everywhere we go. We talk about here at conferences. We talk about it in all of our investor materials. We have it prominently on our website. But it really is the best thing that investors can do. So we encourage people to ask and then independently check.
RITA RAAGAS DE RAMOS: Thank you, Gerri.
GERRI WALSH: Thank you.