Effective and Innovative Investor Education Programs

Association of National Exchanges Members of India

Dr. Naresh Maheshwari – President ANMI

Introduction

Association of National Exchanges Members of India

• Topic very wide in scope.

• It is not possible to have “one fits all” program. No panacea is available.

• Are current Investor Education Program succeeding in their objectives?

• Increased sophistication of product offering- increasing ignorance widening the gap.

• Are they ready to face the onslaught of Unprincipled marketing or mis-selling?

• Is it teaching people how to protect themselves?

• Is it how investors can maximize their gain and minimize their losses, by periodic review of asset class, performance and micro and macro economic factors?

• Whether it is possible for investors to learn these tricks, keep him updated, and keep doing various analysis, tantamount to shutting his own job?

Effective Investor Education

Association of National Exchanges Members of India

Effectiveness of Education has a direct relationship on readiness of investors to reply following questions having positive co-relation in between:

• What is investment?

• Why do we require it?

• What are alternative investment options?- Good investment is different for different people.

• Debt based or equity based?

• What should be Mantra( parameters and tools) to differentiate which option is suitable and ideal for investors?

• Precautions to be observed and documentation to be obtained for different investment solutions

• Role of Consultant or Financial advisor

• Investors’ Grievances Redressal System.

Innovative Investors Education Program

• Financial capability v/s Financial dreams

• Need based program

- Rural and Urban background

- Self employed and fixed salary income group

- Age and dependents

Restoring Investor Confidence

• Educating on pitfalls in investing- pivot for restoring confidence Investing v/s trading

• Awareness of investment policies with short term gains as objectives Increases volatility

• Teaching to protect themselves

• How volatility affects investments? It makes the investors turn away from the market.

• Focus on member firms to offer quality financial services v/s services based on short term gains

• Competition for brokerage is the main culprit for deficient services.

• Legislative reform to make investment easier.

Teaching people to protect themselves

Association of National Exchanges Members of India

• Financial capability to invest is not synonymous with ability to invest and should not lead to financial dreams

– Ability signifies having knowledge

• We need to teach people to protect themselves against their own greed or in other words financial dreams

– Greed is the single most factor leading to market losses

• Ability to invest is also not synonymous with absolute knowledge of the financial product

– With increasing sophistication of products, level of product knowledge soon diminishes

• This by itself lends to unprincipled marketing practices, led by increasing conflicts of interest and marketing led programs under the guise of IE

• This to my mind is one of the most important aspects of IE

Protection of Uninformed Investors

Association of National Exchanges Members of India

• Risk profiling by intermediaries is a major draw back

• Financial Capability must be linked to ability to bear subsequent losses without strain with a cap on losses

• This is an area often overlooked by marketing agents

– This encourages financial dreams

• It is very dangerous to seek the clients own suggestions on risk profiling as is often done by investment advisors

– Being capitalized does not automatically mean the client is risk capable

– Lack of product knowledge is a pointer to being risk averse

– Most investors have limited product information

– This leads to investing beyond ones means

• This is an important area of Investor Education where investors must be taught to conduct their own risk profiling and avoid products not understood by them

Sum Up

Association of National Exchanges Members of India

• Issue of Over leverage

• Ponzi type schemes

• Role of Financial Consultants

• Financial Dreams v/s Financial Capability

• Role of Greed and fear

• All financially adequate persons need not necessarily be financially literate.

• At the same time all financially trained persons need not be educated investors.

• There is no doubt that financial literacy and market sophistication increases with overall education.

• However overall education by itself is not a sufficient enabler to take informed investment decisions.

• Again the proliferation of newer financial products leads to increased investor ignorance.

• In the current environment besides long term approaches to create an informed investor base we should also look at short term approach to improve investor confidence.

• Basic to it would be to create a demand for Investor Education targeted to uninformed investors to avoid pit falls as discussed in earlier slides.

• In particular to develop an innovative program to enable the client to reengineer his portfolio by a proper self / assisted assessment of his risk profile.

Association of National Exchanges Members of India

Thank You

By Dr. Naresh MaheshwariEmail: president@anmi.in

Website: www.anmi.in