Luncheon Address, NASAA Investor Education Training

President’s Remarks

Franklin L. Widmann
Chief, New Jersey Securities Bureau
President, North American Securities Administrator’s Association

November 4, 2004
NASAA 2004 Investor Education Training
Orlando, Florida

Good afternoon. I am very pleased to be your luncheon speaker today at the Third Annual NASAA Investor Education Training Conference.

In my presidential speech last month in Scottsdale, I stressed that investor education, along with training and enforcement, would be the three top priorities for NASAA during my term as NASAA president. That’s why I am here today to support your efforts.

First, I would like to thank Daphne Smith for agreeing to serve as Section Chair for the coming year. Second, I would like to recognize and thank Karen Tyler for her outstanding work as Section Chair for the past two years and welcome Karen to the NASAA Board of Directors. Third, I would like to recognize again, as Don Saxon mentioned earlier, the contributions of Denny Crawford in creating and successfully nurturing the Investor Education Section to the point where investor education is now widely understood to be a core function of the states, provinces and NASAA.

In the new blood category, I would like to welcome Jim Joven, who has agreed to serve as Section Vice Chair for the coming year, and thank Fred Joseph, who has moved on to the NASAA Board of Directors. I would like to thank the other section committee members, Glen Gainer, Karen Terhune and Terri Williams for their continuing contributions.

I would also note that investor education within NASAA is a much larger enterprise than these few people and the efforts of each of you are fundamental to the continued success of our investor education initiatives. Investor education by state securities regulators was also recognized as a priority by Senator Sarbanes in his comments during the Senate Banking Committee hearings on State Securities Regulation at which NASAA President Ralph Lambiase, Enforcement Section Chair Joe Borg and New Jersey Attorney General Peter Harvey testified on June 2, 2004.

I am also pleased that we have been working toward collaboration with the efforts of the U.S. Treasury’s Financial Literacy and Education Commission. As you all know, from having seen their continually outstanding efforts, our Canadian members also consider investor education to be a top priority.

Since I’ve been around for a while, I thought I would give you some “historical highlights” about Investor Education. Investor Education was just an emerging concept back in the late 1980′s. At that time, NASAA periodically issued press releases called “Investor Alerts” that were intended to warn investors of the latest scam by citing recent enforcement actions related to that scam. It was hoped that investors would become sufficiently “educated” not to fall for the scam. That worked pretty well but, but it was just a beginning and not nearly enough to teach people what they needed to know about making wise investment choices in addition to just avoiding fraud. In 1999, the states resolved a serious enforcement matter with Salomon Brothers. The firm got Warren Buffet, the famous investor, to clean up the problems. Key to the settlement was a commitment on the part of the firm to fund a new charitable entity to be called the “Investor Protection Trust” whose purpose would be to educate investors. More about the IPT later…

1996 turned out to be a banner year for Investor Education among the states. All sorts of interesting experimental programs were beginning to take shape. Nancy Smith, the then-administrator in the State of New Mexico, had been working on a program that was finally launched that year. It was called “Train the Trainer” and consisted of a 2 ½ day seminar at the University of New Mexico in Albuquerque aimed at volunteers who would then instruct high school students about various financial matters including investing. Something called the “Texas Investor Education Project” arose from an Enforcement settlement. The Texas project developed a full-blown curriculum for high school teachers that became the precursor to “Financial Literacy 2001″ as it was then known.

Numerous additional state and provincial regulators were taking steps toward dealing with financial illiteracy at a time when individual investors were entering a bull market with virtually no preparation for it. Day trading and other forms of investing that were sure to fail became very popular primarily because the sophistication level of the new “Investor Class” was too low.

In 1997, incoming NASAA President Denny Crawford made the point in her presidential address that Investor Education had now become one of NASAA’s core functions. She also announced that the IPT was going to fund FL2001 (now FL2010) to the tune of a million dollars. The goal would be to get FL2001 in every state and, ultimately, that initial goal was achieved. In 1997 and 1998, a critical mass of interest in Financial Literacy/Investor Education began to cohere. The Council of Securities Regulators of the Americas (COSRA) sponsored a Western Hemisphere investor education month. Numerous investor town hall meetings occurred, along with other educational events. State and provincial regulators started observing Savings and Investing Month. Governors and other public officials issued proclamations and official statements concerning the great need for investor education.

In 1999, NASAA elevated investor education to Section status (joining Broker-Dealer, Corporation Finance, Enforcement and Investment Adviser) and several project groups within the Investor Education Section were created. We all knew there were more fraud cases than we could ever have hoped to bring, and that investor education was the most effective preventive medicine to protect investors from becoming victims of fraud. NASAA jurisdictions began to request funding for their Investor Education programs and to hire staff to coordinate their programs. Bold experiments were undertaken in a great many NASAA jurisdictions. West Virginia, for example, created its “Money Matters” program, while Indiana became quite active in the stock market game.

States now direct some of their settlement funds to the IPT to use for their investor education programs. The recent research analyst global settlements set aside over $20 million for state based programs. From this seed money, a variety of effective programs will emerge to help better protect today’s and tomorrow’s investors. The Canadian Securities Administrators, over the past three years, have sponsored investing segments on a national consumer television program called “Street Cents” aimed at youth across Canada. CSA also designed and published an investor protection brochure aimed specifically at seniors called “Protecting Your Interests” which is used by all 13 Canadian jurisdictions.

In 2002, NASAA held its first Investor Education Training Conference in Minneapolis. It was outstanding. Last year’s Conference in Philadelphia was even better. I am especially pleased to see that several Administrators consider investor education enough of a priority that they are here along with their investor education staff. In my own state of New Jersey this year, due to an increased commitment to investor education by Attorney General Peter Harvey and me, the Bureau of Securities has been able hire a full-time Investor Education Supervisor, and we have recently conducted investor education seminars at the county level for seniors, for the U.S. Army at Fort Dix and for more than 100 retirees from RCA Corporation. We are particularly appreciative for the assistance we have received from other states and provinces, including some of you in this room, in helping us behind the scenes with ideas, advice and brochures.

I should also recognize that other securities regulators, SRO’s and industry groups got on the investor education bandwagon after the state securities regulators, and that’s a good thing. We can all be justifiably proud that it was NASAA members who first identified the problem of financial illiteracy and started doing something about it.

We have come a long way and will undoubtedly continue to be the leaders in this great, worthwhile effort to educate investors. On a more personal level, I recently read a newspaper article about job satisfaction. The point of the article was that it isn’t all about making more money. More than anything else, people want to make a difference. The great thing about working in state government in the area of investor education is that you can make a great deal of difference, very quickly, and in a very important way.

The success of state and provincial efforts in investor education starts at the grass roots level with each of you. If you manage to reach only one person, and save that person from losing their house, their life’s savings or the money to fund their child’s education, you have made a huge difference in that person’s life. Multiply that by what each of you can do by reaching to only one person. Then, multiply that by how many people you can collectively reach in a week, a month or a year. You can make an enormous difference in a relatively short period of time.

The other beauty of it is that investor education is the least expensive tool we have to make a difference. Enforcement cases get the headlines, but frequently the money has already been lost. The money is spent, or hidden, or otherwise untouchable, and it isn’t coming back. We don’t have debtor’s prisons, and even if the person that took the money has been able to lead the high life on investors’ money, the cures are after the fact, incomplete and take too long. Investor education is the preventive medicine that prevents the fraudster from inflicting pain on the investor, up front. Effective investor education allows the investor to keep their house, keep their life’s savings, put their child through college. All it takes is some effort from you.

The other piece to this is that as state securities regulators we have a unique credibility with investors, because we aren’t trying to sell them anything and we aren’t trying to separate them from their money. We are truly just trying to help them survive and thrive with their economic well being intact. This conference gives you an unparalleled opportunity to see what others are doing in other NASAA jurisdictions and to draw on that expertise and experience (not to mention the brochures and videos).

So, enjoy the conference and remember that you can make a difference in this world and you can see it up close when you realize you have genuinely helped someone. Not only will you have made an important difference in some person’s life, you will feel good about what you do for a living. I applaud your commitment to this effort. Thank you.

November 4, 2004

Newsroom, Speeches