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The Results Are In: Investors Favor Additional Regulatory Protection

Posted in Broker-Dealer Regulation, FINRA Enforcement

On November 6, 2014, FINRA released results from a survey of U.S. investors measuring the demand for additional regulatory protections. The survey polled 1,000 adults and revealed that an overwhelming majority felt that it was important to protect investors and police the markets.  Indeed, 74 percent polled would support additional regulatory protections to safeguard against broker-dealer misconduct, and 56 percent expressed support for these additional protections even if it meant a minimal increase in costs.  Interestingly, the results of the survey revealed that younger investors (ages 21 to 39) and investors at an investment level below $100,000, showed greater support for the additional protections than their older and more heavily invested counterparts.  The survey also revealed that the implementation of increased protections could actually increase participation in the markets, as 56 percent of respondents indicated that additional protections would encourage more investment.

Broker-dealers should pay special attention to the additional protections referenced in the survey, as they may point to areas of increased regulatory attention in the future.  Specifically, the survey indicated that at least half of investors polled perceived the following nine protections as “highly important”:

  • disciplining brokers who break the rules with fines, suspensions, or revocations of licenses;
  • detecting when brokers are making trades that benefit them and not the investor;
  • disclosing to the public all instances of rule breaking by firms or individual brokers;
  • detecting when firms are taking risks that potentially harm their investors and the financial system;
  • detecting when unsuitable securities are being sold to investors;
  • requiring brokers to register publicly and disclose their professional history, including past complaints or problems;
  • monitoring which products firms are selling to investors and when there is a sudden change or unusual product concentration;
  • conducting periodic on-site visits to verify that brokerage firms are following all rules and regulations; and
  • reviewing all brokerage firms’ advertising to ensure compliance with rules.

Notably, the survey presented only one side of the story.  The responses lacked insight from the industry about what benefits, if any, could be gained from the additional protections referenced in the survey.  Nevertheless, it’s clear from the responses that these additional protections are certainly on the minds of investors, and therefore should be taken seriously by the industry, because they certainly will be on the minds of the regulators.