Investor Education: Adapting to a Changing World IFIE Asia Chapter Interim Meeting and Asia Securities Forum September 21, 2015—Seoul, Korea

Regulation and education Confidence and capability Adapting to change What I’ll Cover Who we are Regulation and education Confidence and capability Adapting to change

Who Are FINRA & the FINRA Foundation? FINRA—Financial Industry Regulatory Authority: Independent, non-governmental regulator Mission: investor protection & market integrity Deter misconduct by enforcing the rules Detect and prevent wrongdoing in the U.S. markets Discipline those who break the rules FINRA Foundation Support research and outreach to build financial capability for all Americans

FINRA Investor Education Foundation Established: December 2003 Mission: to provide underserved Americans with the knowledge, skills and tools necessary for financial success throughout life Funding: Fines for specific programs and permanent endowment Cash from FINRA Disgorgements 3

Regulation and Investor Education

Why Regulators Make Good Educators Education is aligned with regulatory mission: FINRA: Provide investor protection and promote market integrity SEC: Protect investors, facilitate capital formation and maintain integrity of the securities markets CFTC: Foster open, transparent, competitive, and financially sound markets; avoid systemic risk, and protect the market users from fraud, manipulation, and abusive practices 5

Why Regulators Make Good Educators Understand securities industry and investing public Provide unbiased information/don’t sell securities products Utilize trained staff—and capable of training others Positioned for partnership 6

Why Regulators Make Good Educators We see/detect problems Examinations Market surveillance Fraud detection Calls and emails from investors and industry 7

Why Regulators Make Good Educators We can create unique resources and tools 8

The Balancing Act Can’t give investment advice Can discuss: Key concepts (diversification, risk/reward relationship) Questions to ask Red flags Tips Can direct investors to tools/resources that help them plan and avoid problems 9

Confidence and Capability

Confidence Indicators Come in Different Forms Risk-based Analyzes the buying and selling patterns of institutional investors. The greater the percentage allocation to equities, the higher risk appetite or confidence. Investor Sentiment Bullish, Bearish, Neutral Source: AAII

More Valuable...Measuring Retirement Confidence Employee Benefit Research Institute 22% percent are very confident they have enough money to live comfortably in retirement. 44% of workers without a retirement plan are not at all confident about having enough money for a comfortable retirement Cerulli Associates 85% of households with formal retirement plan feel confident in knowing what assets they will need to retire comfortably, compared to 49% of households that have not completed any formal retirement income plan. Gives us information we can work with: Both reports note that retirement plans and retirement planning contribute to confidence.

Very Valuable…Measuring Financial Capability National Financial Capability Study (NFCS) Objective: Seek empirical evidence of combined effect of knowledge, skills and attitudes on consumer behavior www.usfinancialcapability.org

NFCS Key Components Making Ends Meet Planning Ahead Managing Financial Products Financial Knowledge and Decision-Making

Turning Research Into Education

Adapting to Change

Adapting to Change Social Marketing Brain Research/Psychology/ Behavioral Economics Data Collection and Analysis Employer-Employee Outreach Community Involvement An Aging Nation 17

Adapting to Change Social Marketing “Social marketing is the application of commercial marketing technologies to the analysis, planning, execution, and evaluation of programs designed to influence the voluntary behavior of target audiences in order to improve their personal welfare and that of society.” ― Alan R. Andreasen, Marketing Social Change 18

Social Marketing: The Process Six key steps: Listening Planning Pre-testing Implementation Monitoring Re-examining & revising

Strategic Partnerships are Key to Success Value TO the Strategic Partner Value OF the Strategic Partner Strategic Partners Important to Meeting your goals Satisfied by Your Capabilities Source: Professor Punam Anand Keller

Adapting to Change Brain Research, Psychology and Behavioral Economics Commitment to staying on top of complex fields of study Working with experts outside of regulatory sphere 21

Behavioral Economics: Adapting to Change Brain Research, Psychology and Behavioral Economics Neuroscience: Future Self Psychology: Biases Behavioral Economics: Nudges 22

Adapting to Change Data collection 2015 National Financial Capability Study: New questions reflect changes in the financial, economic and technological landscape. Does your household have a budget? New questions related to: Student loans Use of prepaid debit cards Use of mobile phones for in-person financial transactions 23

Adapting to Change Data analysis Mine for clues about how to reach various target audiences 24

Adapting to Change Data analysis Mine for clues about power of financial literacy   Taxable Only Retirement No Accounts Full Sample Shows “High Financial Literacy” 60% 40% 21% 39% Answered Bond Question Correctly 42% 26% 18% 28% Sought Advice on Saving or Investing 55% 25% 11% 29% Tolerance for Risk (mean ratings on a scale from 1 to 10) 5.8 4.4 4.2 4.8 Participated in Financial Education 19% 14% 25

Adapting to Change Employer-Employee Outreach 26

Employer-Employee Outreach 27

Adapting to Change Community involvement Involving the community

Adapting to Change An Aging Nation MIT AgeLab researchers ask: How do older adults learn, trust, adopt and use new technology and related services? What is the optimal design of everyday ‘things’ and places to facilitate use as well as to excite and delight across the lifespan? How does the framing of information, formation of social networks and trust in ‘experts’ impact the decision-making process of a consumer, patient or client? 29

Adapting to Change An Aging Nation Provide access Listen and respond Work together: regulation, investor education, partners Innovate! 30

Investor Education: Adapting to a Changing World IFIE Asia Chapter Interim Meeting and Asia Securities Forum September 21, 2015—Seoul, Korea