Disclosure Not Enough For Successful Investing

“The SEC’s belief that fund investors can fend for themselves, once armed with adequate disclosure, fails to appreciate the extent of investors’ limitations. Instead, the findings of the academic literature suggest that policymakers must rethink current regulatory policy. Disclosure may not be enough.”

Alan R. Palmiter & Ahmed E. Taha

The above is a quote from a paper put out by two law professors in the United States. I’ll provide the link to the paper below, but here are some blunt highlights:

  1. Industry’s portrait of fund investors = “Sophisticated and Informed”
  2. SEC’s portrait of fund investors = “Capable (with some help)”
  3. Academic Literature’s profile of fund investors = “Mostly Clueless”

The paper is arguing that the industry and the regulators are giving more credit to investors than they are due. I agree with this.

Advertising Doesn’t Benefit Investors

“In addition to financial advisors, investors pay attention to mutual fund advertisements. Unfortunately, these advertisements do not help investors make better fund choices. Instead, advertisements tend to exploit the tendency of investors to chase past returns.”

Again, I agree. Successful investing is 90% psychology and 10% everything else (my own opinion).

Interesting read, although long: the paper is 87 pages. You can check it out here.

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 3 comments
  • Mark Wolfinger

    “mostly clueless’ is a very kind description.

    It’s so sad that financial education is seldom in anyone’s curriculum.


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