From the September 2006 issue of Investment Advisor • Subscribe!

An Education Summit

The CFP Board's annual meeting focused on improving financial literacy

This year, the annual meeting of the Certified Financial Planner Board of Standards was not only a multiday affair in the first week of August with separate sessions for education program directors and certificants, but the public was invited as well, and they attended in significant numbers for the sessions and a planning clinic where more than 2,000 folks got personal advice on their finances from volunteer CFPs. Held in Los Angeles and Santa Monica, the meeting attracted plenty of certificants and notables from the political, regulatory, and monarchical world, including former Senator Bob Kerrey (D-Nebraska), former SEC Commissioner Cynthia Glassman, and the incoming Chairman and CEO of NASD, Mary Schapiro, but also Queen Noor of Jordan.

Kerrey, now president of the New School for Social Research in New York, spoke to attendees and the public, speaking bluntly and in a nonpartisan way, as when he served in the Senate, about some of the tough choices Americans must make about Social Security, Medicare, and the high cost of higher education. As for Medicare, Kerrey noted that it is a "legal claim on all of us," and further asserted that because of the troubles with Medicare, the government "would be bankrupt if it were a private business."

As for financial literacy, which CFP Board CEO Sarah Teslik said was a major theme of the conference, Kerrey lamented that "we haven't taught economics in a practical way" in grades K through eight, and while he admitted that "individual financial planning tied with higher education is an unnatural alliance," he nevertheless called for an investigation of how to make that connection in a practical way. Being a strong proponent, not surprisingly, of education, especially the higher variety, Kerrey said "I don't think we spend enough on kids," laying the blame on the fact that "80% of the people over age 65 vote," while only 10% of under-25 year-olds who are eligible to vote do so.

In her first speech since she left her post as a commissioner at the Securities and Exchange Commission, Cynthia Glassman addressed the issue of fraud, especially among older citizens, the focus of the recent SEC Seniors Summit. Noting that "80% of [privately held] assets are held by over-50-year-olds, that's where the fraudsters go," and called on CFPs to be part of the solution in educating consumers. It's even more important that consumers be financially literate these days, Glassman argued, noting that more than 50% of households owned mutual funds in 2004, compared to only 6% in 1980.

Referring to adoption by the Commission of the so-called Merrill Lynch exemption, she said that the final rule's "proposed disclosure was successful in alerting consumers to ask whether the person [providing services to them] was a broker or an advisor," but admitted that it was less successful in informing consumers "what the difference was" between the two.

Speaking of her time at the SEC, Glassman said the biggest surprise she had was in the amount of time taken by the commissioners on enforcement actions. In finishing her remarks, Glassman asked attendees to remember what she called her "big idea" on how to alert consumers to the dangers of fraud and the importance of education--getting popular figures from television to portray people who have to pick a 401(k) investment or who fall victim to frauds like Ponzi schemes.

All About Education

In her comments at lunch to attendees and the public, the soon-to-be chairman of the NASD, Mary Schapiro, hewed to the education theme of the meeting, saying that "the paucity of financial knowledge among consumers is a huge problem," and pointing out that "very few people learn the basics of finance in high school or college." The culture does not always work to the advantage of investors either, she said: "Americans are not patient, which is why soccer is not a popular spectator sport," she joked. She turned dead serious in pointing out research that showed two-thirds of Americans are not financially ready for retirement, that the average household has $8,000 in credit-card debt, that only 40% of those eligible participate in their workplace's 401(k) programs, and that 17% of all 401(k) plan assets are invested in the worker's own employer's stock." Increased longevity matched with earlier retirement--the mean retirement age is now 62, she pointed out--makes this illiteracy even more troubling, she said. But then she listed some of the steps NASD in particular is taking to address the issue, mostly through its NASD Investor Education Foundation, the recipient of some $50 million in funding from the Wall St. conflict-of-interest settlement. The Foundation has teamed up with the American Association of Retired Persons on 401(k) participant education, and sponsors the Military Financial Education Program (www.saveandinvest.org) to help servicemen and women plan their financial lives.

As for the NASD's plans, Schapiro said that the SRO's key regulatory initiatives will focus on low-priced stocks, including penny stocks and naked short selling; that it wanted the SEC to push a simpler point-of-sale documentation on mutual fund expenses and objectives; and will take a hard look at products that seem like investments but may not be, such as equity indexed annuities.

In response to a question from an audience member who asked if the NASD was regulating through enforcement, Schapiro said that was not the case, though the regulator "was cognizant of that criticism," but admitted that "we're not transparent enough," and that "we have a fragmented regulatory structure." Finally, in a return to the theme of consumer education and evidence of consumers' desire for clarification, Schapiro said that the "Understanding Professional Designations" page was quickly becoming "our most popular page" at www.nasd.com.

Reprints Discuss this story
This is where the comments go.