NKIRUKA NNOROM

In a bid to protect retail investors from risk associated with  uninformed investment, the International Organization of Securities Commissions, IOSCO, has come out with various approaches adopted by regulators of securities market in educating investors on financial products offered by intermediaries.

According to a report titled, ‘Investor Education: Initiatives Relating to Investment Services’ by IOSCO, the subject of investor education is particularly important in the context of current legislative initiatives in some jurisdictions to amend the conduct of business regulations to address potential regulatory gaps that emerged during the financial crisis.

The report stated that several jurisdictions consider investor education to play an essential role in achieving investor protection, saying while some of these jurisdictions have established independent investor education bodies, others have units or departments within the supervisory authority that are charged with investor education.

“However, some supervisory authorities limit their own investor education initiatives largely to the issuance of investor alerts,” it added.

In Nigerian capital market for instance, lack of knowledge of financial products available in the market has been pointed as part of loopholes that led to massive loses during the meltdown.

As it is, the authorities of the Nigeria Stock Exchange, NSE, and the Securities and Exchange Commission, SEC, have mapped various steps in enlightening investors on their investment services.

One of such programmes is the investors’ education adopted by the NSE where retail investors will have the opportunity of sitting with staff of the NSE who will provide answers to their complaints and concerns.

Also, efforts were made by the SEC to conduct investor education in various locations across the country in 2012.

The NSE as well has upgraded its website to provide up-to-date information on quoted companies, products and various actions being undertaken to protect investors.

The report further stated, “Many supervisory authorities provide information for investors on their website homepages about investment services and specific financial instruments. Some authorities complement online information about specific complex instruments with case studies that illustrate, based on specific examples, how investors might lose their investments, thereby translating otherwise theoretical risks into realistic scenarios.”

Continuing, it said, “Some authorities also make use of online tests and quizzes for investors on subjects such as scam potential or on general information about investments and securities. Such tests are found to be popular with investors as they offer a more informal approach to financial matters.

A widely followed approach to investor education is to divide the population into target groups, each with a different risk profile and varying levels of financial knowledge. This approach helps to target investor education measures and make them more effective. For example, measures that target schools or university students, retirees or middle-income groups have frequently been used. In jurisdictions with emerging markets and rapidly rising middle-classes, a focus on the middle-income group is found to be especially effective.

In addition to targeting particularly vulnerable groups, some authorities also address more advanced investors and convey specialized information to them via website and other means.

In addition to using conventional tools in their investor education initiatives, such as written information, conferences and websites, some authorities employ more innovative tools such as TV campaigns or social marketing. One authority uses a known celebrity to host these shows, giving these measures enormous publicity.”