Fraud, Dishonesty Are Retail Investors’ Big Concerns

As you might have guessed: Retail investors satisfaction with brokeragesand individual brokershave declined, according to the Security Industry Association (SIA) annual investors attitudes survey. According to the survey, the percentage of investors who classify themselves as having a "very" or "somewhat" favorable opinion of the securities industry is at 55 percent in 2002, down considerably from

As you might have guessed: Retail investors’ satisfaction with brokerages—and individual brokers—have declined, according to the Security Industry Association (SIA) annual investors’ attitudes survey.

According to the survey, the percentage of investors who classify themselves as having a "very" or "somewhat" favorable opinion of the securities industry is at 55 percent in 2002, down considerably from last year’s 62 percent total. Of that 55 percent, only 9 percent said they had a "very" favorable opinion of the industry, the lowest since Harris Interactive started polling for the SIA in 1995. Compare that to investors’ opinion last year when 22 percent said they had a "very" favorable opinion of the industry.

The news was a bit better for individual brokers. Despite the drop in overall confidence, investors were less harsh on their personal brokers. Eighty-five percent of the 1,500 respondents still claim to be satisfied with their brokers, down slightly from last year’s 91 percent. In his inaugural address as newly elected chairman of the SIA, Morgan Stanley Individual Investor Group president and chief operating officer John H. Schaefer focused on this bright side.

In a good sign for individual reps, investors have "higher confidence in individual brokers than in their firms," Schaefer said to a press conference at the annual SIA convention in Boca Raton, Fla. "We haven’t seen people take their money out. We’re just noticing a shift in business from equity to fixed income. So people are keeping their money at firms, though."

Still, that 85 percent satisfaction with individual brokers figure is also the lowest since Harris Interactive began polling—although the poll, performed by Harris Interactive, is just eight years old. Indeed, one mustn’t search for the good news, since the survey was full of bad news all around. Only 60 percent said their broker did an "excellent" or "good" job at having a track record of strong performance, a substantial drop from 2001’s 81 percent. Also, 67 percent of respondents classified brokers’ services as having a "good value," down from 77 percent last year.

Perhaps most striking: The poll says that the main issue facing the securities industry in 2002 is "dishonesty," with a whopping 41 percent total. In 2001, only 8 percent answered "dishonesty."

Schaefer addressed the need for increased attention to integrity and responsibility.

"(The founders of industry leaders like J.P Morgan and Dean Witter) weren’t talking about rules and regulations," Schaefer said. "They were talking about character, honor, and integrity—a personal code. I think investor confidence will grow as we, the leaders of our industry, continue to demonstrate, every day, that it’s a code we live by too."

Shafer also outlined a plan for SIA over the next year, including an emphasis on the passage of legislation to assist investors in building retirement and education expenses; automating settlement processes; and attempting to expand global opportunities for U.S.-based brokerages. But the emphasis, in the eyes of the executives and their investors, is on accountability.

"In the end, despite the toughest regulations, despite the most tenacious regulators, despite the most severe penalties that our courts can impose, it all comes down to one thing: how each of us behaves in our jobs," Schaefer said. "We each need to act as if our names are on the door. No regulatory regime is magically going to do the job. It is up to every one of us."

Complete text of Schaefer’s speech can be found at www.sia.com/about_sia/html/schaefer02.html.

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