Do the Brokerage Industry’s Disclosure Requirements Really Put Investors First?

Steve McDonald By Steve McDonald, Bond Strategist, The Oxford Club

Slap In The Face Award

Transcript:

Today’s “Slap in the Face” Award goes out to the folks responsible for the legal disclosures that are supposed to help us make better, more informed decisions about packaged products – things like mutual funds, ETFs and annuities.

With all the innovation in accessing online information, are you telling me companies don’t have a better way of getting key information (costs, performance, management style and long-term results) to investors? And that they have to rely on the 50- to 100-page paper “sleeping pills” we now have?

These things are long, boring and full of legal language that no one except a Wall Street lawyer can understand.

And, as far as I can tell, they’re designed to conceal and confuse, not inform.

Here’s how difficult these disclosures are to decipher…

In a study just published in the Journal of Behavioral Finance, students were asked to choose from four index funds that were identical in all respects, except their fees.

One group – the students who didn’t review standard SEC disclosures about the importance of minimizing fees – put an average of 50% of their money into the more expensive funds.


But those who did review the cost information still put 47% of their money into the higher-cost portfolios.

Frankly, I’m surprised the other 53% of the group that read the fee information got it right.

Reading that stuff is like reading Greek… to almost everyone!

And these groups were made up of graduate business students, not the average guy who gets these documents and throws them away in frustration.

In this age of digital, online, instant access to information (which allows us to interact, respond and do just about anything we want with it), doesn’t it seem just a little strange that we still get prospectuses and proxies in print – by snail mail?

The average investor has enough trouble managing his money without the information and disclosure reporting format adding to the difficulty.

If the SEC requires this information be provided before investors can buy packaged products… don’t you think it should also require the documents be made simple enough so the average person can understand them?

Good investing,

Steve