Survey Finds Investors Lacking Important Skills

In the survey from Securities Investor Protection Corporation (SIPC)/Investor Protection Trust(IPT), 83% of respondents failed the test of key knowledge and behavior, according to a press release.   Only 17% of respondents correctly answered a sufficient number of questions on knowledge (six out of eight) and behavior (three out of four).    The survey found that women were more likely than men to fail the test by a margin of 91% to 77%.

On a positive note, 90% of investors did say they regular review their brokerage account and/or mutual fund statements, according to the release.   On the knowledge side, 74% of investors showed they understood the concept of diversification.

Only 21% of respondents said that they practice all four of the desirable behavioral traits focused on in the SIPC/IPT survey, however, which are: reading prospectuses, regularly reviewing account statements, checking out the disciplinary backgrounds of brokers/financial planners, and having a financial plan in place.

“This survey is a yardstick that shows us how investor education in the US needs to measure up if it is goingto be helpful to investors.  Everyone recognizes that investors need to know certain key facts and concepts, but it is important that they learn the behavioral process of investing – such as checking the background of a stockbroker or investment advisor – that may prove to be just as critical to their success in the long run.  The task of making American investors wiser and safer is by no means an impossible job, but it is a long road on which those of us in this field still have a quite a ways to go,” IPT President and CEO Don Blandin said in the release.

Other key survey findings included:

• One in four investors provided enough correct answers to pass the knowledge portion of the survey test.  Fewer than three in five investors (57%) provided a sufficient number of correct answers to pass the behavior side of the survey.
• Not much more than a third of investors (36%) have checked out the disciplinary backgrounds of their stockbroker and or financial planner. Seven out of 10 those who did not check out their financial planner’s background indicated that they did so either because they trusted the individual in question (61%) or the individual had assured them that there was nothing to be concerned about (9%).
• Fewer than one in 10 investors (8%) understand that no agency or organization “insures you against losing money as the result of fraud in your investment portfolio.” A total of four out five investors incorrectly identified one or more of the following entities as providing such insurance:  Securities and Exchange Commission (42%); Federal Deposit Insurance Corporation (41%); and SIPC (23%).
• Fewer than three out of five investors (58%) said that they have “ever” read a prospectus.
• More than three out of four investors (77%) claimed to have a financial plan of some sort in place.

The survey was conducted by Opinion Research Corporation among a national probability sample of 2,063 adults comprising 1,036 men and 1,027 women 18 years of age and older, living in private households in the continental United States.   Full survey results can be found at  www.sipc.org/survivalquiz.