Home Blog National Financial Capability Study

Tax Free Retirement

Roth IRA
Roth 401(k)
Life Insurance

National Financial Capability Study
Friday, 10 December 2010 23:59

While I'm no fan of FINRA, they produced some studies recently and I think there's some interesting items buried in here. I suspect that the results will be ignored by the very constiutency that FINRA allegedly regulates - namely, stock brokers.

One problem I continually run into when working with my clients is they are often invested in risky investments. The term "unsuitable" is what the securities industry likes to use.

According to the FINRA sponsored study, many Americans are risk averse, and very few are highly willing to take risks when it comes to their investments. Here's an interesting graph about investor risk tolerance:

While the study author's want us to believe that cannot find any direct evidence of how much this significant risk aversion is tied to recent market turmoils, I can say with confidence that how risk averse one is during an economic downturn is a much better indicator of investor risk tolerance than any measure during an a bull market.

What this study tells me is that there is a much wider market potential for safe and secure retirement savings products.

What is more disturbing, in my opinion, is the efforts by regulators to restrict public access to safe retirement savings products, such as fixed index annuities. Namely, FINRA Notice 05-50 and the epic failure SEC Rule 151a.

Congress did the right thing when handling the SEC debacle. Clearly, an agency that refused to heed repeated written warnings about Bernie Madoff has no business getting their paws on to safe insurance products that are already regulated by 50 superior regulatory agencies (and superior is no exaggeration, when one measures and compares the results of state regulated insurance to federally regulated securities and investment banking - the several states win, hands down).

There's one more step needed:  Congress should enjoin FINRA through new legislation that prohibits FINRA from interfering with any duly licensed insurance agent, including registered representatives, from soliciting, selling, and servicing non-registered fixed annuities of any kind. Further, FINRA should be required to prohibit their member firms from any restrictive activity or active supervision where such activity and supervision is outside the bounds of an employer-employee relationship.

In simple terms, the independent registered representatives should have their civil rights and economic freedoms returned to them, so that they may better serve the American public.