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SEC Releases Financial Literacy Study

Pursuant to the Dodd-Frank Act, the Securities and Exchange Commission (SEC) was required to conduct a study identify the financial literacy of retail investors in the U.S.  The study can be found here. 

Not surprisingly, the study showed that retail investors consistently lacked financial literacy of basic investment issues, and lacked critical knowledge about investment fraud.  The report states:  “... studies have found that investors do not understand the most elementary financial concepts, such as compound interest and inflation.  Studies have also found that many investors do not understand other key financial concepts, such as diversification or the differences between stocks and bonds, and are not fully aware of investment costs and their impact on investment returns.”

Despite most individuals’ lack of financial literacy, and the fact that most individuals rely on investment professionals due to their own lack of investment knowledge, a standard defense raised by brokerage firms in FINRA arbitrations is to blame the victim and claim that the investor understood the risks involved in following the broker’s advice.  This study refutes the common defense that almost every individual is a “sophisticated investor” capable of understanding the risks involved.  If you suffered losses due to the wrongful acts of a broker, advisor, or brokerage firm, please contact one of our attorneys for a free consultation.

Posted by Greco & Greco on 08/31 at 06:34 PM
ArbitrationBondsBrokerage FirmsFINRARetirementSECSecurities FraudSuitability

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