Courtesy of Pam Martens.
According to the Financial Industry Regulatory Authority (FINRA), there are 635,315 licensed securities representatives doling out investment advice throughout the United States. And yet, according to multiple studies, financial illiteracy continues to reign supreme. Is there a connection between the fast-talking, jargon-spewing, commission-focused salesmen on Wall Street and the sad state of basic investment knowledge in America?
My personal experience over two decades on Wall Street suggests that the number of licensed representatives who will take the time to educate their clients and play an integral, long-term, supportive role in helping clients build a secure retirement program is the exception – certainly not the rule.
The characteristics that Wall Street typically seeks in its brokers were accurately summed up in a 1990s Merrill Lynch training film wherein licensed broker, Michael Stamenson, tells rookie brokers that success requires “the tenacity of a rattlesnake, the heart of a black widow spider and the hide of an alligator.” Stamenson went on to play a central role in the bankruptcy of Orange County, California through the sale of complex derivatives. Merrill Lynch made $100 million in fees on the transactions; Stamenson collected $4.3 million in just the two-year period of ’93 and ’94.
Although brokers on Wall Street are frequently designated by their firms as financial consultants or financial advisors, there is far more pitching of products and far less advising on finances going on. That reality is showing up in sobering studies.
According to a Gallup poll conducted in April 2011, the number of Americans who say they will not have enough money to live comfortably in retirement reached a new high of 53 percent in 2011. And the angst is not limited to those nearing retirement. According to a Pew Research survey conducted in 2012, 53 percent of adults between the ages of 36 and 40 said they are either “not too” or “not at all” confident that their income and assets will last through retirement.
In a 2006 study for the National Bureau of Economic Research, Annamaria Lusardi and Olivia S. Mitchell found that financial literacy plays a direct role in a willingness to prudently plan for retirement and that, in turn, has a direct correlation to the ability to successfully accumulate wealth. To quote the authors:
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