From: Lis Libengood
Jonathan G. Katz
Re: SEC Proposal on Point of Sale and Confirmation Disclosures
Dear Mr. Katz:
I'm a lowly office assistant at a small independent firm...basically one of the worker bees upon whom all of this massive amount of paperwork the SEC is forcing us to generate is really falling. I'm already doing quadruple the paperwork I used to have to do to get a fourth of the work done! As a purely service-oriented person, I think like a consumer, not a salesman and these are things I observe about clients.
Number one: Clients hate having to sign multiple forms. They know full well that it is government regulation forcing them to do so, and they resent it, but most of them believe they are helpless to do anything about the government. When they complain about all the forms, I tell them to write Congress, but most never bother. It's easier to just complain.
We need fewer, more consise forms that make sense, not more forms full of legal gobbledygook and industry jargon.
Number two: Clients cannot possibly digest all of the complex disclosure information they already are forced to hear, nor are they interested in doing so. Privacy fliers, account opening fliers, tax disclosures, nosy questions about their identity, fund expenses, risk warnings, fees, yada, yada, yada. You can't possibly, during an hour consultation, put that much information into a person's head and get them to them retain it.
You've gone to school, haven't you? Did you learn everything you ever needed to know about math, for instance, in just one hour in class? No, of course you didn't. It took you an entire school year to learn just how to do basic addition and subtraction, and an entire lifetime to get and stay familiar with more complex mathematics. What makes you believe that a client, completely ignorant about the financial world, is going to learn everything there is to know about investing in a one hour consultation. And most clients aren't going to sit still for more than an hour or two.
Disclosure information needs to be simplified not made even more complex.
Number three: Clients have short term memory about what you do disclose to them anyway. You can state, "Mr. X, you will have to pay an annual account fee of $35" and a year later when they are billed for the fee, they'll call and say, "You never told me about this fee." There is no cure for this. They can sign forms and listen to disclosures all day and the minute they walk out the door, they forget everything that was said...mostly because they don't care in that moment. It only becomes important to them when the bill arrives. We cannot possible hold a gun to a clients head and make him care about the disclosures.
Disclosures aren't important to the client until the bill comes. Some of the responsibility should fall on the consumer.
Number four: No matter how forcefully you put a prospectus into a client's hands, it ends up left behind on the table or tossed in the trash on their way out the door.
The prospectus booklets and the disclosure forms are wasted paper and thousands of destroyed trees taking up space in warehouses, brokers filing cabinets, and community landfills and nothing else.
Number five: Even if a client does take the prospectus, he never reads it. Have you, personally, ever read a prospectus? I graduated cum laude with a degree in English, went to graduate school, and also taught English for four years. Besides being utterly bored by a prospectus, I can't understand a tenth of what it's saying. I work in this business, and I can't ferret out the meaning of most of the paragraphs. Do you really believe that a client is going to take the time to try and figure out what it says?
Any disclosure information given to a client should be short and in plain English.
Number six: Every client knows that all of this paperwork and boring disclosure stuff is the result of our lawsuit-happy society. They all resent the fact that Joe Bob Whiner sued because he lost some money in the market during the recent recession and that now he's a millionaire and that's costing them more to invest, making them sign more forms and listen to more boring disclosures. They also resent the fact that Ken Lay and Martha Stewart and Osama bin Laden are forcing them to sign more forms, answer more nosy questions, and listen to more boring disclosures they could care less about. In other words, they resent, just like I as a lowly worker-bee resent, that we are being punished for the actions of a few slime-balls.
You cannot force a consumer to be responsible about his purchases. You cannot force a consumer to consider every possible downfall to a purchase. Harassing us all with more forms, more questions, more disclosures to stop illegal activities is treating a symptom, not a disease. You organization needs to start looking to the disease.
What we REALLY need, instead of more forms, more regulations, and more disclosures which only punish the honest, well-intentioned people is much harsher punishment for the white collar criminals.