“Investing has the ability to change an individual’s life, to take your family from one place and one plan to another, or to help you achieve a new goal,” said Commissioner Robert Jackson of the U.S. Securities and Exchange Commission at a town hall meeting held at Georgia State University College of Law on June 13.
The townhall meeting was formed by the SEC in an effort to bridge the distance between Main Street and Wall Street. This event marked the first time all five commissioners appeared together outside of the SEC headquarters in Washington, D.C. to meet with investors and answer their questions.
“Education is a two-way street,” said SEC Chairman Jay Clayton. “The more we hear from you, the more conversations we have, the better we can do our job.”
Clayton advised attendees on how to choose a financial professional, and he gave some examples of questions investors should ask. The first and most important thing to determine, he said, is whether or not the person is registered with the SEC or the state.
“If they are not a registered financial professional, the risks you are taking in dealing with them go up dramatically,” he said. “They don’t have oversight, they don’t have inspection.”
Clayton went on to say that investors should also consider what type of investment professional works best for their needs—a broker-dealer or an investment adviser. A broker-dealer is transactional based, the broker-dealer makes recommendations for specific types of stocks and is paid through commissions. An investment adviser helps determine what you should invest in based on your needs and portfolio, and generally charges a quarterly or annual fee based on the level of assets.
Understanding how each is compensated is also important. “I believe when you understand someone’s incentives, you have a much better relationship with them,” Clayton said.
Jackson stressed the importance of researching the companies you are investing in and considering whether they align with your needs and have a solid plan for making money.
“Whatever it is you are trying to achieve, ask questions that reflect how important that issue is to you,” Jackson said. “If your family’s future is at stake, if where your kids are going to go to school or where you are going to retire or what your next career is going to be is what’s at stake, you should ask questions that reflect the stakes of the game.”
Clayton also noted that the SEC is working on developing databases of investment professionals who have had “bad actions” more available and accessible to the public. More guidance on investing, including a list of red flags to watch out for, can be found at www.investor.gov.
SEC Commissioner Michael Piwowar stressed the value of portfolio diversification and he said investing in mutual funds is often a simplistic, more effective and more efficient route to go for many investors. Exchange traded funds (ETF), which are gaining popularity, are good for people who want intraday liquidity and the fees tend to be low. However, he said to be cautious with leveraged or inversed ETFs, which can be risky and may not be in the customer’s best interest.
Stein said financial technology, or fintech, is changing the way business is being conducted, and there is good and bad that comes with those changes. Technology may reduce the cost of investing and provide more data, but there is also increased risks for Ponzi schemes and other scams.
“We have new things like robo-advisers, online peer to peer lending, equity crowdfunding and block chain technology,” she said. “We are trying to keep pace. We all want to foster innovation, but it can’t come at the cost of lax investor protection or loss of market integrity.”
After the panel discussion the commissioners took questions from the audience and townhall attendees were encouraged to participate in breakout sessions on topics such as Bitcoin and initial coin offerings (ICOs), investing in small companies and stopping fraud, of which Nicole G. Iannarone, associate clinical professor and director of the Investor Advocacy Clinic was a panelist. The Investor Advocacy Clinic represents and educates investors while providing a quality educational experience to Georgia State University College of Law students.