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PRINCIPLE THREE:
Congress should promote policies designed to enhance diversity and inclusion in all aspects of the capital markets, take steps to prevent exploitation of elderly investors, and address the unique challenges facing Millennial investors.   

Critical conversations surrounding racial and gender inequality and inequity have shown that the financial services industry, like many others, suffers from a lack of meaningful minority representation and inclusion at all levels of decision-making. Not only is there a growing demand for increased diversity and inclusion at financial agencies and their regulated entities, but leading research also indicates that greater diversity correlates with sound corporate governance and performance. Congress has an important role to play in addressing this pervasive and overarching problem throughout our country, especially with respect to the financial services industry and vulnerable investor groups.


Encourage Corporate Board Diversity.

Research shows that board diversity enhances the performance of the company, and investors increasingly regard corporate board diversity as an indication of good governance that improves corporate performance and investor relations.[i] Indeed, corporate board diversity is a material investment consideration. However, many companies continue to struggle, or may be reluctant, to diversify their boards in any meaningful way.[ii] Congress should examine the current state of corporate board composition with an eye toward encouraging greater diversity. At a minimum, Congress should direct the SEC to require public companies to disclose information that demonstrates the diversity on their boards, or the lack thereof, as well as information regarding the diversity of their corporate operations.

Examine Diversity in Venture Capital.

Gender, racial, and ethnic equity in the financial services industry lags diversity in society more broadly, and that is especially the case for diversity in venture capital (VC). Moreover, recent decades have seen “venture” funding emerge as a major source of funding for startup businesses, and access to VC investor networks, or the lack thereof, can be the difference between success or failure of many of the most promising businesses, particularly in rapidly emerging or evolving industries. However, remarkably, as of 2020, only nine of the 100 top VC partners worldwide are women, and women make up only 11 percent of VC partners in the U.S., according to a recent report by Deloitte.[iii] Congress should consider new initiatives that promote diversity and inclusion in VC, particularly initiatives that have the potential to tap into new markets and fund a diverse set of startups and entrepreneurs.

Examine Diversity in the Brokerage and Asset Management Industry.

Despite overwhelming evidence that a diverse workforce enhances a company’s ability to employ the best talent, build employee engagement, innovate, and ultimately succeed, the financial services industry continues to lag other large segments of our economy regarding the inclusion of women and people of color. Congress has a critical role to play in advancing diversity, equity, and inclusion. [iv] The 116th Congress conducted significant oversight of diversity in the banking industry during the 2019-2020 session, and NASAA urges the 117th Congress to build on that momentum by monitoring the specific actions broker-dealers and asset managers are taking to make their workplaces more inclusive.[v] The new Congress should also consider how regulators can help facilitate greater diversity.

Enact Policies that Address the Exploitation of Elderly Investors.

The 117th Congress should take further action to evaluate and respond to evolving trends and threats impacting senior investors. The COVID-19 pandemic has placed many seniors at greater risk, financially and medically, as they spend more time in isolation to protect themselves from infection. Congress should foster industry efforts targeted at protecting aging investors from potential exploitation. As a starting point, Congress should enact common-sense legislation that aims to prevent increased financial exploitation of the elderly and provides necessary compensation for any financial loss experienced by senior victims of fraud.

  • The Senior Security Act. Congress should enact the Senior Security Act, a bipartisan, bicameral bill that will establish a federal Senior Investor Taskforce within the SEC to consult with state securities regulators and law enforcement authorities regarding scams impacting seniors.[vi] This Taskforce would facilitate direct dialogue and information sharing between federal regulators and policymakers, and state and local officials. This legislation also mandates a comprehensive Government Accountability Office (GAO) study of the costs, causes, and barriers to reporting the financial exploitation of seniors. When completed, such a study would significantly enhance the understanding of the unique challenges and risks facing senior investors and inform future policy initiatives to combat the growing problem of senior financial exploitation.
  • The Edith Shorougian Senior Victims of Fraud Compensation Act. Congress should enact bipartisan, bicameral legislation to amend the Victims of Crime Act of 1984 (VOCA) to establish eligibility for seniors victimized by financial exploitation to be reimbursed from state victim compensation programs.[vii] Such legislation would significantly benefit senior victims of fraud by creating incentives for states to provide compensatory restitution to elderly victims when no means of comparable financial recovery is possible.

Address Emerging Risks for Millennial Investors.

The 117th Congress should direct more attention to the unique challenges and risks to Millennial investors. Due to compounding economic calamities and generational circumstances, Millennials are especially susceptible to financial insecurity and disproportionately at risk of being targeted by bad actors.[viii] For example, in December 2020, the Massachusetts Securities Division brought a complaint against Robinhood Financial – an online trading platform popular with Millennials – for “aggressive tactics to attract inexperienced investors, its use of gamification strategies to manipulate customers, and its failure to prevent frequent outages and disruptions on its trading platform.”[ix]

 To better assist Millennials in achieving financial security, Congress should monitor emerging areas that pose a greater risk to this generation, including online and mobile “app” based trading platforms, and ensure that adequate investor protections are in place to safeguard them and their financial futures from abuse. Initially, Congress should examine novel investment services and innovations that target Millennials and Generation Z and consider where enhanced levels of oversight or legislation would be appropriate.[x] Congress should also consider enacting programs that will further incentivize members of these generations to save and invest responsibly.


NOTES:

[i] According to PwC’s 2019 Annual Corporate Directors Survey, 84% of board directors surveyed indicated that a diverse board improves relationships with investors and 76% agree that board diversity enhances the performance of the company.  However, the Institution Shareholder Services (ISS) reported only 19% of Russell 3000 board seats are held by women, and approximately 10% of directors belong to an ethnic minority group.  

[ii] Although the qualitative and quantitative benefits of boardroom diversity are compelling, too few U.S. public company boards include a meaningful number of diverse directors. A 2019 study by the Alliance for Board Diversity showed that women and minorities combined represented just one-third of Fortune 500 directors, which means that two-thirds of Fortune 500 directors are white males. An even smaller percentage of small-cap company directors are diverse—one study shows that board diversity in small-cap companies is at least a decade behind the progress made by large-cap companies.” See https://news.bloomberglaw.com/corporate-governance/steps-for-corporate-boards-serious-about-improving-diversity-in-the-boardroom.

[iii] See https://www2.deloitte.com/us/en/pages/audit/articles/diversity-venture-capital-human-capital-survey.html.

[iv] Matt Krentz, Survey: What Diversity and Inclusion Policies Do Employees Actually Want?, Harvard Business Review (Feb. 5, 2019), available at https://hbr.org/2019/02/survey-what-diversity-and-inclusion-policies-do-employees-actually-want.

[v] In 2019, the House Financial Services Committee conducted a landmark analysis of diversity in the banking industry. This examination including hearings, and an analysis of relevant data requested by the HFSC from all bank holding companies and savings and loan holding companies with assets over $50 billion. See HFSC Subcommittee on Diversity and Inclusion hearing entitled “Good for the Bottom Line: A Review of the Business Case for Diversity” (May 2019). The HFSC’s examination culminated in a Committee Report released in February of the following year. See Diversity and Inclusion: Holding America’s Large Banks Accountable, Committee Staff Report (Feb. 2020), available at https://financialservices.house.gov/issues/diversity-and-inclusion-holding-america-s-large-banks-accountable.htm#Purpose%20of%20Bank%20D%20Data). 

[vi] See Senior Security Act, S. 1719, 116th Congress (2019) and NASAA’s Letter to Sens. Kyrsten Sinema (D-AZ) and Susan Collins (R-ME) regarding S. 1719 (June 5, 2019), available at https://www.nasaa.org/wp-content/uploads/2019/06/NASAA-Letter-Re-Senior-Security-Act-S-1719-060519.pdf.

[vii]  During the 116th Congress, the Edith Shorougian Senior Victims of Fraud Compensation Act of 2020 (S.3487 / H.R. 7620) was sponsored in the Senate by Sens. Tammy Baldwin (D-WI) and Bill Cassidy (R-LA), and in the House by Reps. Suzanne Bonamici (D-OR) and Peter King (R-NY).  A copy of NASAA’s letter expressing support for the legislation is available at https://www.nasaa.org/wp-content/uploads/2020/06/NASAA-Letter-Re-Ediths-Bill-62520l-1.pdf

[viii] According to a survey from Prudential Financial, roughly 1 in 3 Millennial workers have exhausted their emergency savings during the course of the COVID-19 pandemic, compared to just 16 percent of Baby Boomers and 27 percent of Gen X-ers. Millennials were also more likely to: withdraw from their retirement plans to make ends meet, notice an increase in debt over the last year, and delay a professional goal because of their financial concerns. See Pulse of the American Worker Survey: Road to Resiliency, Prudential Financial Inc. (January 2021), available at https://news.prudential.com/presskits/pulse-american-worker-survey-road-to-resiliency.htm.

[ix] See https://www.sec.state.ma.us/sct/current/sctrobinhood/MSD-Robinhood-Financial-LLC-Complaint-E-2020-0047.pdf.

[x] Specifically, Congress should consider clarifying the duty of care that online and app-based brokers should owe to investors who invest through their services, especially platforms that utilize “push” notifications and other features designed to encourage frequent trading and/or trading in certain securities.