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Tuesday, December 2, 2003 Nancy A. Condon  202-728-8379 Michael Shokouhi  202-728-8304

 

NASD Announces $10-Million Education Fund

Washington, DC – NASD Chairman and CEO Robert R. Glauber announced today the establishment of the NASD Investor Education Foundation, whose mission will be to provide investors with high-quality, easily accessible information and tools to better understand investing and the markets. The Foundation, which will have an initial endowment of $10 million, is a response to both the current environment in the markets and a recent survey conducted by NASD that showed investors still have a number of fundamental questions and misunderstandings about important investment issues. Grants from the Foundation will be used solely to fund educational programs, materials and research aimed at segments of the investing public who could benefit from additional resources.

The survey, conducted on NASD’s behalf by Applied Research & Consulting LLC (ARC), asked 1,086 investors more than 50 basic and intermediate questions about investing in stocks, bonds and mutual funds. Among the key findings of the survey:

• An overwhelming 97 percent of investors realize they need to be better informed about investing. And nearly half of the participants said they could have avoided a negative experience had they known more about investing.
  
  
• Nearly 50 percent thought stock market losses were insured.
  
  
• Seventy percent of investors failed to understand that when you buy on margin, you can lose all of your investment even if the value of your shares does not go to zero.
  
  
• Nearly 80 percent did not understand fully the meaning of “no load” mutual funds.
  
  
• Almost 70 percent did not know why municipal bonds offer lower pre-tax yields.

“NASD has long been committed to investor education. Our investment in the Foundation makes that commitment clear and responds to a desire by investors for information that can help them create a more secure future for themselves and their families,” Glauber said. “The market bubble and the aftermath, including some of the current misdeeds in the sale of mutual funds, have clearly shown that the more objective information investors have about investing, the better.

“Our 2003 Investor Survey shows that investors realize they need to be better educated about both basic investing and the different investing products available to them,” said Glauber. “Investors want and need this information and, at NASD, we recognize a responsibility to help meet that need as part of our mission.”

During the last two years, NASD has taken a number of steps to make more information available to investors. This has included developing and publishing Investor Alerts, brochures and online resource guides on such critical topics as mutual fund class shares and 401(k) and college savings plans. NASD has distributed this information through its Web site, www.nasd.com, printed materials and through Investor Forums that have been held in a number of different cities.

NASD also makes available at no charge a service that allows the public to check the professional background and history of brokers and securities firms. In 2002, members of the public used this service to conduct more than 2.5 million searches for existing brokers or firms and requested almost 200,000 reports in cases where disclosable information existed on that individual or company. In order to help spread the word more broadly about this service, Glauber also announced today that NASD has now changed the name of this program from the Public Disclosure Program to NASD BrokerCheck. Investors can also continue to access this service by calling (800) 289-9999.

The NASD Investor Education Foundation will function as a separate, not-for-profit organization, and will complement NASD’s investor education efforts. It will have an initial funding level of $10 million, with additional resources in future years to come from fines collected in connection with NASD’s disciplinary activities.

The Foundation will be overseen by a Board of Directors, and will focus its grants on educational programs and materials aimed at segments of the investing public whose financial concerns are not being addressed. The Foundation will not be allowed to make grants or contributions to for-profit businesses or individuals or entities affiliated with NASD registered firms and members of the NASD Board of Governors.

The investor survey was conducted in the spring of 2003. Of the 55 questions posed, 10 were basic financial literacy questions. Only 35 percent of investors scored a passing grade on this survey, which required correct answers to at least 7 of the 10 financial literacy questions. The survey showed better investor education is especially important for lower-income investors, younger people, and women. For example:

• Only 24 percent of investors between the ages of 21 and 29 scored a passing grade, as opposed to 45 percent of investors age 50 and over
  
  
• Only 23 percent of investors with household incomes of $50,000 or less scored a passing grade, as opposed to 51 percent of investors with income of $100,000 or more
  
  
• Only 25 percent of women scored a passing grade, as opposed to 46 percent of men

NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business – from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum in the securities industry for investors and NASD registered firms. For more information, please visit our Web site at www.nasd.com.