Stephen Andrew Kovach
Publication year: 2014

After more than 100 years of regulatory policy, why is financial security still at risk for financial consumers? A wide array of evidence indicates that many investment advisers lack the human capital required to provide prudent advice to financial consumers. Further investigation reveals a fundamental problem with current minimum regulatory qualifications for employment in the field of investment management. This lack of oversight has devastating implications for financial consumers, with spillover effects that visibly harm the national economy.

The central argument of this thesis is that financial security can be improved through federally established, minimum educational requirements for investment advisers. In presenting this argument, I provide a working definition of public interest and financial security that is consistent with the literature.

I analyze regulatory policies that have been implemented in response to each crisis, which supports the notion that financial security is at risk for all consumers, particularly for low-income and African-American citizens. I argue that the underlying cause of this risk is substandard advice provided by investment professionals that intentionally steer financial consumers towards high-risk investment products and/or investment strategies that are unsuitable for their clients’ risk tolerance level. My thesis includes an analysis of prevailing theories that support my argument; an analysis of other theories concerning the cause(s) of financial crises; a review of current requirements for investment professionals; a comprehensive overview of the occupation itself; and the results and analysis of a survey conducted specifically for this study (n=891) that provides insight into financial consumer awareness of key polices that affect the investment industry, and the financial products in which they invest their money. I posit that if the government were to impose minimum educational requirements for investment professionals, it would (1) improve the overall quality of advice that financial consumers receive from the investment industry; (2) filter and sort individuals that lack the human capital needed to advise clients and manage their money; and (3) reduce the severity of the next financial crisis.