finra

Remarks by Mary L. Schapiro
Vice Chairman, NASD President, Regulatory Policy and Oversight

SEC Seniors Summit
SEC,
Washington, DC

July 17, 2006

 

Good morning, and thank you Chairman Cox, for inviting me to speak today on senior investment fraud and more importantly for bringing us all together for this Summit. I hope and believe it will be a defining moment in the protection of senior investors.

 

NASD has long been committed to protecting investors of all ages through a wide range of programs. When it comes to combating fraud targeted at seniors, we take an approach we are sure our parents and grandparents would applaud-we go back to basics and focus on the three Rs: regulation, reaching out, and research.

 

The first R—regulation—encompasses our rulemaking, enforcement, and examination activities. As you've heard, we're in the midst of a multi-regulator sweep that focuses not only on the advertising that lures investors to free seminars, but also on the promotional materials for the products and services being pitched. A primary focus for the examination teams, as they review the firms' supervision, control, advertising, and sales material for senior seminars, is whether there are product misrepresentations or unsuitable investments being sold to the attendees.

 

We also understand that awareness, prevention and education are major deterrents to investment fraud. That's why reaching out—our second R, is so important.

 

NASD educates seniors and other investors about how to invest wisely and avoid investment fraud through its own investor education program and through the NASD Investor Education Foundation.

 

In 2003, we conducted a survey that found an overwhelming 97 percent of investors realize they need to be better informed about investing. NASD responded with an expanded array of resources, including a series of investor forums and workshops across the country, some held at senior centers.

 

The NASD website, finra.org and companion web site for military investors, saveandinvest.org, provide a wealth of information for all investors and specifically for seniors. Investor Alerts—warn of the latest scams or risky products. Several focus on products we often see targeted for sale to seniors, such as equity-indexed annuities, variable annuities, and "stretch" IRAs.

 

The site also offers a number of interactive centers and tools of particular interest to older investors who are at or near retirement age. The 401(k) Learning Center contains valuable information about withdrawals from that essential retirement-funding vehicle. Many seniors will find the Bond Learning Center very helpful since they typically invest a greater percentage of their assets in fixed income investments.

 

NASD also provides investors—via the internet or toll free telephone call—with a service called BrokerCheck which allows investors to quickly access information about the disciplinary history, professional background, business practices, and conduct of the brokerage firms and individual brokers with whom they invest.

 

An increasingly important resource at nasd.com is the Professional Designation Database. It's the only tool available that helps investors to decode professional designations and better understand what education and experience requirements are necessary for any given designation, including those that suggest special expertise in the needs of senior citizens.

 

Investors also benefit from the grant making of the NASD Investor Education Foundation. In its first two years of grant making, the Foundation has funded two grants that focus particularly on older Americans.

 

One of those grants funded the development of an interactive, game-based educational program to provide education on retirement planning, primarily for 45 to 60 year old women. The new game is called Get Rich Slow, and it's available free on the Web site of the Center for Retirement Research at Boston College.

 

This leads me to our third R—research. Before we can devise workable solutions to senior investment fraud, we must, as with any complex problem, first determine how and why, and through what mechanisms, the problem occurs. What motivates seniors to succumb to the persuasion tactics of a stranger? Who do seniors trust? And where do those seniors who are most vulnerable to aggressive sales pitches get their information? How can we best reach them? How can we best equip them to avoid fraud?

 

The Foundation's second grant—to WISE Senior Services—funded research to begin to answer these questions. You will hear more about the fruits of this research in just a few moments. Let me pique your interest by saying that the WISE study provides fascinating new evidence that victims of senior investment fraud are not who we so often assume they are.

 

The research WISE conducted is a critical step in helping all of us—regulators, educators, and senior advocates alike—to understand senior investment fraud and develop practical messages to increase awareness among seniors.

 

I believe that one of many next steps should be to complete our own understanding of senior investment fraud. To that end, last month, the NASD Foundation Board authorized a comprehensive investor survey of senior citizens.

 

The survey will identify basic market knowledge and financial literacy levels for seniors. It will also shed light on their savings and investment habits, which investment products and services they purchase and why, what marketing messages resonate with them, which information sources they use and trust, and where they turn for help.

 

As many of you know, the Foundation has devoted a great deal of energy to developing a comprehensive program for providing financial education to military servicepersons and their families—which is available at SaveAndInvest.org. We hope to do the same for seniors. As with the military effort, we anticipate that a senior outreach initiative will include multiple partners and will encompass research, an array of educational programs tailored specifically for seniors and a public awareness campaign.

 

As you will see, the WISE study shatters the stereotypes of senior fraud victims and forces us to rethink how we approach the challenge of combating senior fraud. We at NASD look forward to working with the SEC, state securities regulators, senior advocates, educators, and other partners on this important initiative. Thank you

 

[Introduction of Wise Senior Services Research Team]

 

It is now my pleasure to introduce two of the several individuals who worked so hard on the Senior Investor Fraud Study, which the NASD Investor Education Foundation supported through a research grant. Please welcome Professor Anthony Pratkanis of the Department of Psychology at the University of California-Santa Cruz and Doug Shadel, State Director of AARP's Washington State Office.