Kara Stein was appointed by President Barack Obama to the U.S. Securities and Exchange Commission (SEC) and was sworn in on August 9, 2013.
More than five years later, Stein is the last Obama-era commissioner, with the remaining three commissioners and the SEC chair all having been appointed by President Donald Trump. Under the leadership of SEC Chair Jay Clayton, the regulator’s agenda has clearly shifted to favor a more conservative perspective.
During a recent speech given during a Brookings Institution retirement symposium, Stein urged her fellow commissioners to do whatever they can to help all Americans more adequately prepare for retirement.
“We’ve moved from a collective retirement system to one in which each person is expected to go it alone,” Stein said. “About three out of every four adults in the United States live in a household with at least one type of investment account. And, an overwhelming number of those investment accounts are retirement accounts. But, unfortunately, most Americans are not, and may never be, prepared.”
Stein pointed to data from the National Institute on Retirement Security, showing the median retirement savings of Americans between the ages of 55 and 64 is currently zero.
“Indeed, even for those who do have retirement accounts, the average balance is only $88,000, which would provide a mere $3,600 per year in retirement [once annuitized],” Stein said. “This is consistent with recent surveys conducted by the U.S. Securities and Exchange Commission’s Office of the Investor Advocate, where most investors reported holding less than $50,000 of assets in their investment accounts.”
As an SEC Commissioner, Stein said, her job is “to talk about solutions specifically related to the third leg of the proverbial stool—investments.”
“Stashing away money in a savings account only gets retirees so far. To have a safe and secure retirement, Americans must invest their savings to allow them to grow,” Stein said. “For example, someone who saves $17 a day starting at 21 will have put aside $273,000 by the time they are ready to retire at 65. However, if they invest that same amount with a return of 7%, they will have almost $1.8 million in their retirement account. Without investment, retirement may be a dream that never comes true. Given the importance of investment to Americans’ ability to retire, what can the SEC do to help?”
A Push for Investor Education
While some of Stein’s speech focused on voicing her dissatisfaction with the SEC’s light-handed approach to crafting the new Regulation Best Interest, she raised some new ideas about ways the SEC could promote investor education. She acknowledged that financial education is difficult and has its limits, but she said it is still one of the most important ways to start to solve the retirement savings shortfall.
“As an initial matter, we can certainly help build financial capacity and investing acumen. The Commission already does a lot of work in this area, but we need to do more,” Stein said. “For instance, we know that much of the education people receive about investing comes once they have enough money to invest. But if we are truly to make a difference, financial literacy education needs to start much earlier. The SEC should work with other agencies to create a model curriculum for schools. We should sponsor contests—similar to spelling bees—for middle school and high school students about investing in their future.”
Stein proposed the idea of creating a digital app that teaches kids and adults how to invest.
“And we can work with private industry to have public service announcements on saving for retirement,” she said. “This is the kind of thinking we need to engage in if we are going to help prepare Americans for the task of investing for their own retirement.”
Noting that “education will only get us so far,” Stein further said the Commission “must ensure that investors have the information and tools they need to make good decisions.”
“This means the information they are given about potential investments must be clear and easy to understand. Investors should be able to look at the first page or two of a prospectus and understand how much they will pay in fees, and to whom,” Stein said. “Investors also should be able to understand the key features and risks of the security without having to dig through hundreds of pages. If we can simplify food labels, we can simplify investment disclosures. For instance, in the home mortgage area, a concise disclosure form has greatly increased consumers’ understanding of the details of their mortgages. Why shouldn’t we have a similar requirement for investments?”
It is far from clear that the other commissioners, especially SEC Chair Clayton, will embrace these last suggestions, but Stein is defiant.
“Moreover, investors should be able to easily compare financial products. To accomplish this, I would urge the Commission to consider updating the means by which information is provided to investors,” Stein said. “Many online retailers use tools that allow customers to compare similar products online, side-by-side, in an easy-to-understand format. We can learn from these retailers and allow investors the same opportunity to understand the choices before them. If we can compare toasters online, we should also be able to compare stocks, mutual funds, and other investments.”
Specifically referencing the retirement plan industry, Stein encouraged the SEC to implement “mandatory periodic disclosures about the value of investors’ 401(k) accounts to show how much income will likely be generated in retirement.”
According to Stein, “this could be like the [credit score] box on the back of your credit card bill. Such information would let an investor know if they are on track to meet their retirement goals.”
Criticism of Regulation Best Interest
Notably, Stein’s speech did not directly mention the SEC’s Regulation Best Interest proposal, but she did take some veiled shots at her fellow commissioners for taking a softer approach to tamping down on advisory industry conflicts of interest, relative to the court-vacated approach taken by the Obama-era Department of Labor.
“My guess is that it would be easier to simply require that all persons actually giving investment advice put their client’s interest first. It’s simple and straightforward,” she said. “The costs of conflicted investment advice are huge and they come, in large part, at the expense of retirees. The Commission must address the differing standards of conduct applicable to investment professionals and do so in a way that protects investors. This is our mission. This may require action from Congress, but the consequences are too large for us not to get this right.”