FINRA’S REPORT EXPOSES INVESTOR UNAWARENESS
In correspondence to a recent report from the FINRA Foundation, a substantial fraction of investors with investments in non-retirement accounts may misinterpret the varieties of costs they disburse for trades, account services, mutual funds and investment advice.
Analysis of the Initial Report
“Investors in the United States: A Report of the National Financial Capability Study” analyzed feedbacs from over 2,000 individuals that possess investments in non-retirement accounts. Respondents were tested with a 10-question quiz to prove their investment expertise.
According to the research director for investor education at FINRA, Gary Mottola, approximately a third of the investors either assumed they did not make payments or charges on their accounts or were oblivious to what they were paying.
“One thing we found somewhat disconcerting is when we asked (investors) how confident they were in understanding fees, 60% said they were confident,” he said. “Generally speaking, investors feel pretty confident on understanding fees, but the data shows something different.”
Based on a report, 56% of investors stated that they paid fees or commissions for trades, and barely less than half asserted that they pay fees on service accounts. Only 30% of respondents were capable of answering more than six questions correctly on the 10-question quiz, indicating insufficient skill in investing among the population.
“With financial knowledge in general, people tend to be overconfident,” he said. “When we ask people to rate their knowledge on financial matters, it’s higher than when we objectively measure it.”
Previous Reports and Similarities
The research proved that 32% of the country invested in non-retirement accounts, a rise of only 2% from a synonymous FINRA survey executed in 2015. Meanwhile, the volume of men with non-retirement investments improved from 35% to 39% during that period, as the percentage of women with similar investments was flat at 25%. According to the survey and relating to 2015, the ones with non-retirement account investments tend to be “male, older, white, college educated and have higher household incomes”.
Mottola indicated that the majority of investors combine strategies to make investment decisions and execute trades. For instance, amid investors who periodically had professionals making investment decisions for them, 72% sometimes made decisions prior to their own research, while 51% of investors who trade online sometimes make trades through an advisor. Furthermore, investors tend to constantly believe their investments will overperform, which Mottola confirmed as key for advisors when overseeing the clients’ expectations.
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