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Retirement Planning > Retirement Investing

Who Best to Educate the Public?

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Investor education is in sad shape in America today Just turn on your television. You’ll find Donald Trump and Robert T. Kiyosaki (Rich Dad, Poor Dad) flacking books on how to get rich by speculating in real estate while they get rich by selling books. Turn the dial: You’ll find Jim Cramer ranting about the next hot stock. Meanwhile, the basics of investing and planning get short shrift. It’s a sad commentary.

So who’s going to educate and protect the public? Congress and the Securities and Exchange Commission? Well, think again.

The SEC has done very little with the $52.5 million, five-year settlement it won from the financial industry in 2004 to fund The Investor Education Entity–a new nonprofit organization for investor education. The SEC should work with associations of financial professionals to roll out the educational initiative. There’s a critical need for advisors in the trenches to get involved in teaching the public how to construct and rebalance a portfolio, manage risk, and invest for college and retirement.

Last spring, I wrote to the NASD in regards to their advocacy grants and volunteered to help educate the public. A few weeks later, I got my answer. Registered reps aren’t allowed to participate because we had a “conflict of interest.”

It’s pretty peculiar. We’re the ones who are licensed and accountable to our clients and regulators. The NASD apparently doesn’t see us as professionals; instead we’re all potential miscreants. If the people on the front lines aren’t allowed to help educate investors, who will? The regulatory agencies should be working with us to do outreach to the public, just as other oversight agencies work cooperatively with doctors, lawyers, and CPAs.

While planning and investing are complex, the basics can be conveyed in a 15-minute face-to-face meeting with a client. The key tools are Ibbotson charts and the “periodic table” of investments. If you start talking to clients about abstruse topics like the efficient frontier, their eyes will glaze over. But they don’t really need to take the advanced course; Investing 101 will put them far ahead of most people.

The periodic table is a color chart that shows how different asset classes have performed year by year. It illustrates that you have to be in asset classes that are working, while reducing exposure in classes that aren’t. It shows that one year’s hottest performer is often the next year’s biggest dud. The lesson: Diversify and rebalance regularly.

But you won’t see the periodic table anywhere in consumer magazines or television.

Advisors who show their clients how to use the periodic table and similar tools do themselves and their clients a big favor. With this information, clients can readily judge whether the investments you’re recommending have compiled a good track record and produced robust long-term returns. When you show them how the process works, they’re more open to trust you.

Some advisors think that more informed clients feel they won’t need an advisor anymore, but the opposite is true. They’re more apt to leave you if they don’t understand what you’ve done for them and why. Understanding is particularly crucial when the market takes a tumble.

Let’s hope the government does more to foster investor education. Meanwhile, the ball’s in our court.

Frank Congemi

Registered Financial Gerontologist

Forest Hills, New York, and Deerfield Beach, Florida


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