(Oh hey! You're back. So glad you are! Before you read on, did you know there is an audio version? If you haven't listened to it yet, here's your chance!)
I talked to Barbara Roper, who is the Director of Investor Protection for the Consumer Federation of America (CFA). They are a nonprofit consumer advocacy organization.
They were created in the late 1960s as a way to give the consumer movement a voice in Washington, D.C. Their focus is on financial issues, including high-cost credit insurance. Barbara works on investor protection.
However, she says CFA also works on energy efficiency, telecommunications policies, and food and product safety.
The bottom line?
Their goal is to tackle matters that impact the consumer.
They work for you...consumer protection!
Choosing the Focus
I was curious how does the CFA choose what to focus on?
After all, there are so many topics out there! Does she look at what the current hot topic is? I asked her: How does something really strikes a chord with the Consumer Federation and create a movement?
Barbara reports that they have some basic policies and a framework that they use to make those decisions.
She and her colleague, Michael Hoffman, focus on issues that relate to financial planners, broker-dealers, investment advisors, and the standards that apply when they work with retail customers.
Barbara said they pay attention when something is happening at the SEC, or they’ll notice some type of abuse happening.
Then they start the next step(s).
Research, Advocacy, Education, and Service
They have several avenues in which to reach out to consumers.
CFA wants to understand the issues that arise. research behaviors, and attitudes. A few of their tools are surveying groups, doing market studies, and paying attention to the issues that flare-up on Twitter.
There are four questions that CFA asks:
What is the nature of the problem?
Is there any evidence of harm?
What is causing the problem?
Are there solutions?
They are also interested in educating consumers and consumer protection. They have a campaign named “America Saves”. That’s at Americasaves.org. It was created to help consumers get out of debt, save, and build wealth.
CFA provides additional services such as a credit score quiz, ID theft, and payday loan information. Plus, advice on evaluating life insurance.
As you can see they are all about helping the consumer improve their finances!
Let’s look at some of the issues.
One of the questions Barbara brought up was about the relationship between individuals and their investment agents.
How is that relationship regulated?
Barbara was charged with writing a study about abuses in financial planning. It was the right moment for a focus on this specific topic, which hadn’t really been questioned before. She was on the CBS Evening News, the Today Show, and in the Wall Street Journal.
She says the question of consumer protection lies in their dealings with financial professionals.
She said, “I think we have this whole sort of system of securities regulation that assumes that individuals are going to read these disclosures about investment products and make informed decisions.”
That might sound like a good idea, but Barbara said the disclosures are unreadable because of the way they are written, which assumes a certain understanding and level of expertise.
There are many people whose most important investment decision is deciding who they choose for financial advice.
That relationship then becomes one of central importance.
If individuals don’t have clear and thorough information for choosing this important person (financial advisor) in their lives, they could jeopardize their future financial stability.
The Status Quo
It’s a disaster all over the place.
There are misleading practices in the way brokers describe their services and the misleading use of titles. Barbara said we have services that are indistinguishable to the average investor that are regulated under different standards of conduct.
The problem is nobody understands these documents.
She’s written letters to every administration, asking for this problem to be solved. It’s finally supposed to happen in June. However, Barbara indicates it’s more of the same and in some areas, it’s made the situation worse!
Yes, as adults we do have to take responsibility for our situations. However, we must be given the chance to take that responsibility. Consumer protection involves giving people the tools they can actually use.
What does that look like?
It doesn’t look like a book. It shouldn’t be a full-time job reading and understanding the disclosures.
Over the years that I’ve been a financial advisor, the number of pages these disclosures contained have multiplied.
This causes us to reflect on a number of problems for the consumer:
Do consumers really want to read 20 pages? No.
Does the consumer understand all the contents of the 20-page “disclosure”? No.
[Let’s keep in mind, the number of pages grows to cover the advisor’s or broker’s side. They are not for the benefit of a consumer.]
And who writes the disclosures?
[They are written by attorneys and securities market experts to be understood by securities, market experts and attorneys.]
Disclosures are not designed to be understood by average investors!
Effective Disclosure Design
Barbara indicated there is some effective disclosure design knowledge.
“An investment advisor who opens an account with an investor has to provide them with what we call the ADV form. It’s designed to provide investors with all the information that they need to determine whether this is a good person for them to work with.”
She went on to say in some cases they are 130 pages long. Unfortunately, most people stop reading, long before they get to the most important pages.
What’s in those most important pages?
There will be ten pages of legalese describing their conflicts of interest!
Here is the disconnect, you’ll fill out a two-page new customer relationship summary for a standalone broker or advisor. It’ll be four pages for a firm offering other services.
We are talking approximately ten questions, including your conflicts of interest.
However, they’ll have ten pages to describe their conflicts of interest.
Does my conversation with Barbara leave you wondering what is getting left out in consumer protection?
You can see there is that consumers have a problem. That is just one of the issues that Barbara and the CFA are working to correct.
Have some feedback? Leave a comment below.
OK, quick check-in!
How did you like this blog? If you've found it helpful and enlightening, please share your thoughts in the One Million Apples Facebook Community!
Or... if you find yourself in need of someone who can help you navigate your way through your financial plan, check me out at Wealth of Confidence!
I'd love to help you.