WASHINGTON -- Speakers at the annual Investment Company Institute conference are warning mutual fund company executives that their industry needs to do a better job of educating investors.
Both on the podium and in the corridors, attendees are expressing concern that consumers may not always understand the risks of investing. And that lack of knowledge may come back to haunt mutual fund sellers later.
The mutual fund industry should be trying to remedy its problems now, Arthur Levitt Jr., chairman of the Securities and Exchange Commission, told an audience of 1,500 people gathered here for the trade group's conference on "Obligations and Opportunities in an Expanding Market."
Quoting John F. Kennedy, Mr. Levitt warned that "the time to repair the roof is when the sun is shining."
In a presentation entitled "Investor Education: What Are Our Obligations?" panelists agreed that there is a serious need for better, clearer information.
While companies have made an effort to improve their marketing materials and clarify prospectuses, that is not good enough, said John Markese, president of the American Association of Individual Investors, a Chicago-based group that represents 170,000 members.
"Prospectuses will never be an educational document," Mr. Markese said.
Although demographic research indicates that more of the consumer group's members are earning college and graduate degrees, they are not necessarily more sophisticated financially.
"I think we have a bright individual investor populace," Mr. Markese said. Nevertheless, he added, they don't understand how markets behave or the effect of market behavior on their mutual funds.
Optimism Prevails
"People still think the market is a one-way street," agreed fellow panelist Terry Savage, a personal finance columnist for the Chicago Sun-Times.
With mutual fund ownership becoming widespread among individual investors, there is a sense that today's investors may be less knowledgeable about investing than people who played the market in the past.
"People who read the business pages are selling mutual funds to the people who read the sports pages," Ms. Savage said.
Keynoter Ronald P. Lynch, chairman of the ICI and managing partner of Lord, Abbett & Co., told mutual fund company executives that eliminating customer confusion should be part of the investment industry's job description.
Responsibilities Listed
Educating shareholders, along with supporting government action to protect them and regulating the mutual fund industry's conduct, is one of the ICI's principal obligations, said Matthew Fink, president of the Washington-based trade group.
And mutual fund companies have the resources to help solve the "financial illiteracy problem," noted Alexandra Arm-strong, chairman of Armstrong, Welch & Mcintyre, a financial advisory firm in Washington.
As Marshall Loeb, managing editor of Fortune magazine and a panel moderator, pointed out, "educating the public is not only good for the country, it's also good for business."
