A new study of financial literacy by the staff of the U.S. Securities and Exchange Commission (SEC) finds that investors would prefer to receive investment disclosure before they trade, and that it be presented in concise, visual formats.
The SEC published a staff study on Thursday that was mandated by the U.S. regulatory reform bill known as Dodd-Frank, which examines investor perceptions and preferences regarding investment disclosures.
The study says its research shows that “investors prefer to receive investment disclosures before investing, rather than after, as occurs with many investment products purchased today.”
Additionally, it says they prefer “layered disclosure” that includes summary documents detailing key information, with more detailed information available on demand; and that they favour disclosures in visual formats, using bullet points, charts and graphs. In terms of delivery, some prefer paper disclosure, while others would rather receive it online, it notes.
The SEC report also identifies the sort of information that investors find useful and relevant in helping them make informed decisions, including information about product fees, investment objectives, performance, strategy and risks; along with information about an advisor’s professional background, disciplinary history and conflicts of interest.
Additionally, it proposes several methods of improving expense disclosure, and for increasing the transparency of conflicts of interest.
“Understanding the needs of investors is critical to carrying out the commission’s investor protection mission,” said SEC chairwoman Mary Schapiro. “The study provides important data and insights that will assist the commission in its ongoing efforts to help retail investors make informed investing decisions.”
“From methods to improve disclosures to best practices for investor education programs, the study addresses a wide range of areas related to investor literacy,” added Lori Schock, director of the SEC’s Office of Investor Education and Advocacy. “It is a ‘must read’ for any individual or organization dedicated to educating investors.”