Investor Perceptions and Preferences Toward Selected Stock Market Conditions and Practices: An AARP Survey of Stock Owners Ages 50 and Older

Published March 2004

Full Report

Investor Perceptions and Preferences Toward Selected Stock Market Conditions and Practices:

An AARP Survey of Stock Owners Ages 50 and Older

Full Report

Data Collected by Knowledge Networks Report Prepared by S. Kathi Brown

Copyright © 2004

AARP Knowledge Management

601 E Street, NW Washington, DC 20049

http://research.aarp.org Reprinting with Permission

AARP is a nonprofit, nonpartisan membership organization dedicated to making life better for people 50 and over. We provide information and resources; engage in legislative, regulatory and legal advocacy; assist members in serving their communities; and offer a wide range of unique benefits, special products, and services for our members. These include AARP The Magazine, published bimonthly; AARP Bulletin, our monthly newspaper; AARP Segunda Juventud, our quarterly newspaper in Spanish; NRTA Live and Learn, our quarterly newsletter for 50+ educators; and our Web site, www.aarp.org. We have staffed offices in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.

Acknowledgements Knowledge Networks, of Menlo Park, California, collected the data for this study through its web-enabled panel. This report was prepared by S. Kathi Brown, Strategic Issues Research, AARP Knowledge Management. Jeff Love and Teresa Keenan reviewed this report. For additional information, contact S. Kathi Brown at (202) 434-6296 or Jeff Love at (202) 434-6279.

CONTENTS

I. Executive Summary..................................................................................................3 II. Introduction ..............................................................................................................6 III. Detailed Findings .....................................................................................................8

Appendix A: Methodology .........................................................................................43 Appendix B: Annotated Questionnaire.......................................................................44

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I. EXECUTIVE SUMMARY

This survey of 50 to 70 year old investors was conducted in order to examine perceptions of selected securities industry practices, the stock market, and financial services professionals. The survey illustrates that most investors feel that the cost-related issues of price per share and fees are more important in stock transactions than are other issues such as speed of transaction. Findings also reveal widespread concerns among investors related to dishonesty in the securities industry, lack of ethics, lack of accountability, and lack of consumer protection, suggesting that much remains to be done to restore investor confidence.

Best Available Price vs. Speed When presented with two opposing views related to the importance of obtaining the best available stock price versus the importance of other issues such as speed of transaction, approximately two-thirds (66%) of respondents indicated that they agreed with the view stating that best available price should be the top priority when conducting transactions.

Best Available Price vs. Speed (n=1,917)

View A: Best available price should be top priority.

66%

View B: Important to balance need for price with speed and other issues.

31%

Refused to answer 3% When asked how strongly they agreed with their selection, close to three in four (74%) respondents indicated that they somewhat agreed. Approximately one in four (26%) indicated that they strongly agreed. Those who felt that best price should be the top priority (“View A” supporters) and those who felt that the need for best price should be balanced with speed and other issues (“View B” supporters) were equally likely to indicate that they strongly agreed with their respective viewpoints. Specifically, among View A supporters, 74 percent indicated that they somewhat agreed with View A, while only 26 percent indicated that they strongly agreed. Similarly, among View B supporters, 74 percent indicated that they somewhat agreed with View B, while only 26 percent strongly agreed with View B. When those respondents who selected View A were asked if there were any circumstances under which best available price would not be their highest priority, almost half (48%) said that best available price would not be their top priority if obtaining the best price meant that they would have to pay high fees. Another 41 percent pointed to the need to conduct transactions quickly. Close to one in six (17%) reported that best available price would always be their highest priority. Of all respondents, more than eight in ten (86%) agreed that their stock broker or mutual fund manager should notify them before completing a transaction in which best available price is not the top priority.

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Important Considerations When Investing in Mutual Funds or Individual Stocks When respondents were asked to rate the importance of price, fees, speed, and confidentiality, the cost-related issues of price and fees received significantly more very important ratings than did speed and confidentiality. Between 70 percent and 80 percent of respondents perceived price and fees to be very important in both mutual fund transactions and individual stock transactions. Approximately 60 percent perceived confidentiality to be very important, while fewer than 30 percent perceived speed to be very important. Confidence in Financial Services Professionals The majority of respondents (74%) reported that they prefer to have others manage their investments for them, although they do like to be involved in major investment decisions. In fact, close to two in three (66%) indicated that they rely on either a personal broker/financial advisor, an employer-sponsored broker/financial advisor, or a banker when making investment decisions. While investor reliance on financial services professionals may stem in part from a desire to reduce demands on their own time, most investors appear to lack confidence in their ability to conduct trades and make investment decisions without the assistance of financial services professionals. Specifically, close to three in four respondents (72-76%) have more confidence in the abilities of mutual fund managers or stock brokers to conduct transactions for them than they have in their own abilities to conduct transactions. In contrast, only one in three (33%) are confident in their ability to buy and sell individual stocks without the assistance of stock brokers. Interestingly, although subsequent sections of this report reveal widespread concerns about the securities industry on issues such as a lack of ethics and a lack of accountability, most respondents (76%) indicate that they are at least somewhat confident that “the financial institutions that handle my money manage my accounts according to what is in my best interest.” This apparent contradiction may reflect differences in interpretations of the terms “financial institutions” and “securities industry” as it is likely that the term “securities industry” brings to mind entities, such as brokerage firms, mutual fund firms, and stock exchanges, whose primary functions involve trading stocks. In contrast, it’s likely that respondents interpret “financial institutions” more broadly to include banks, which are likely to be perceived as separate from the securities industry. Yet another possibility is that respondents are more confident about their own banks and investment firms than they are about the industry as a whole, which may contribute to this relatively high level of confidence in institutions that “handle my money.” Concerns and Worries About the Stock Market Fear of losing money (63%), lack of ethics (61%), and general concerns about the state of the economy (55%) top the list of respondent concerns about the stock market. More than half of respondents selected these items when asked to select from a list of eight possible concerns. In contrast, fewer than one in three (29%) are concerned about the impact of future terrorist attacks on the stock market.

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Problems for the Securities Industry Dishonesty (62%), lack of accountability (62%), and lack of consumer protection and means of recourse for harmed investors (60%) are those issues that respondents are most likely to view as “big problems” for the industry. More than half also view insider trading (57%) and lack of internal controls and checks (52%) as “big problems.” Need for Changes in Regulations Of all respondents, close to eight in ten (78%) feel that the regulation of the securities industry should be stronger than it is today. One in three (33%) feel that it should be much stronger, while 45 percent feel that it should be somewhat stronger. Only one percent feel that it should be looser. Approximately one in five (21%) report that they don’t know whether regulation of the industry should be stronger or looser than it is today. Conclusions For most individuals interested in investing, the ability to deal with the complexity of and choices in the equity markets begins with the challenge of determining which analysts, brokerage, mutual fund or account management firms to trust, and is followed by the challenge of interpreting and assessing investment quality rating systems that they use. What investors expect from those who present themselves, or whose firms present themselves, as professional market analysts is not perfection, but a fair rating of the trade-offs and risks being assumed. The comprehensiveness as well as the jurisdictional range of inquiries made by Congressional committees over the last four years, is testimony to the seriousness of the risk posed to – until recently -- an undervalued national asset. That asset has been the trust of potential as well as active individual investors in the public structures and processes to assure and re-assure them of the openness and fairness of our equity markets. At a time when individual investor confidence has been deeply shaken, the investing public is looking to Congress, and the federal and state securities regulators, for genuine reform – not merely a shift in which exchanges or market agents will benefit - to underwrite and renew its trust in the fairness of our markets. The ultimate purpose of our system of investor protections is not to eliminate investment risk, but rather to fairly characterize and inform the risk takers of its nature and condition. The bar has been raised and the scope expanded for substantial trading system reform. A sustained market recovery will be validated only with the return of confidence by individual investors, justified through reform of the market’s principal institutions and agents. In the final analysis, timely access to quality information is critical to bringing discipline to corporate, mutual fund, pension account performance as well as to assuring proper governance and effective investor protection.

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II. INTRODUCTION In recent years, stock market investors have weathered a sluggish economy, the steep market declines prompted by the September 11th terrorist attacks, trade deficits, and reports of numerous scandals ranging from illegal corporate accounting practices to insider trading. According to an analysis of the Federal Reserve Board’s 1998 and 2001 Surveys of Consumer Finances, the stock market declines of 2000 and 2001 reversed gains posted earlier, and by the end of 2001, most major indexes had nearly returned to their 1998 levels. 1 Moreover, in a survey conducted by AARP in December 2002, three in four investors between the ages of 50 and 70 reported losing money in stocks during the preceding two years, and the majority of those who lost money indicated that they had adjusted their work plans, lifestyles, or expectations of retirement as a result of their losses.2 However, the proportion of families that own corporate equities either directly or indirectly (such as through mutual funds or retirement accounts) rose from 1998 to 2001. By 2001, the proportion surpassed 50 percent. The growth in the value of equity holdings helped increase financial assets as a share of total family assets despite a decline in the overall stock market that begin in the second half of 2000. Today’s investor participates in an increasingly complicated world that co-mingles personal finance with the factors and forces of global capital markets. Many individuals own stocks through more than one method. The four primary means by which individuals may own stocks are as follows:

• Directly own shares in publicly traded companies; • Own shares in equity mutual funds outside of retirement saving plans and pension

accounts; • Own equity through self-directed retirement plans such as IRAs or Keogh plans; • Own equity through corporate retirement savings plans such as defined contribution

plans. As stock ownership becomes more commonplace among U.S. households, this most recent survey of stock owners was conducted to examine investor perceptions of selected securities industry practices, the stock market, and financial services professionals in light of the previously mentioned challenges of the last few years. This survey focuses on investors ages 50 and older and their valuation of investor protection first principles and investment priorities during a period of market turbulence and reform.

1See: Aizcorbe, Kennickell & Moore, “Recent Changes in U.S. Family Finances,” Federal Reserve Bulletin, January 2003. 2 See: Brown, “Impact of Stock Market Decline On 50-70 Year Old Investors,” AARP, 2002.

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Methodology Overview Knowledge Networks, a research firm based in California, administered this survey using its web-enabled panel of people who have agreed to participate in surveys. This panel is designed to be representative of the U.S. population and was built by providing Internet devices and Internet service connections to people who have agreed to serve on the online panel. By providing Internet access to willing participants, Knowledge Networks allows individuals who would otherwise have no access to the Internet to participate in online research. Conducted from February 13th to February 20th, the survey was fielded to panel members who met each of the following criteria: (i) are age 50 or older, (ii) own stocks, either as individual stocks or in mutual funds; and (iii) have primary or joint responsibility for making household financial investment decisions. A total of 1,917 households participated in the survey. The survey was conducted online due to the need to collect opinions about fairly complex issues in a timely manner. For example, concepts, such as the tradeoff between best available price and transaction speed, would have been too complex to present over the telephone, and a mail survey would not have been possible within the short timeframe.

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III. DETAILED FINDINGS A. BEST AVAILABLE PRICE VS. SPEED When presented with two opposing views related to the importance of obtaining the best available stock price versus the importance of other issues such as speed of transaction, approximately two-thirds (66%) of respondents indicated that they agreed with the view stating that best available price should be the top priority when conducting transactions.

Best Available Price vs. Speed (n=1,917)

View A: Best available price should be top priority.

66%

View B: Important to balance need for price with speed and other issues.

31%

Refused to answer 3% Certain individuals, such as those who conduct fewer transactions per year, women, those who are older, those living outside of the West census region, those with lower incomes, and those with less education were more likely to feel that best available price should be the top priority. Specifically, the following significant differences existed within subgroups: Differences Based on Stock Ownership and Investment Behaviors

• Investors who had conducted no mutual fund transactions, other than automatic transactions, within the past 12 months, were more likely (70%) than those who had conducted at least three mutual fund transactions (59%) to agree with View A (best price).

• Individuals who had conducted only one or two individual stock transactions, other than automatic transactions, within the past 12 months, were more likely (72%) than those who had conducted at least three individual stock transactions (62%) to agree with View A (best price).

• Individuals who own stocks only in retirement investments were more likely (74%) than those who own stocks outside of retirement investments (66%) to agree with View A (best price).

Likelihood to agree with View A (best price) did not vary based on whether a respondent owned stocks as individual stocks or in mutual funds. Differences Based on Demographics

• Women were more likely (75%) than men (62%) to agree with View A (best price). • Respondents ages 65 and older were more likely (71%) than individuals ages 50 to 64

(66%) to agree with View A.

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• Investors with no formal education beyond high school were more likely (74%) than those with at least some college education (65%) to agree with View A.

• Respondents with annual household incomes below $50,000 were more likely (71%) than those with incomes of $75,000 or more (61%) to agree with View A.

• Respondents in the Northeast, Midwest, and South census regions were more likely (69%) than those in the West census region (59%) to agree with View A.

Likelihood to agree with View A (best price) did not vary based on any of the other demographic variables tested, including race, employment status, and marital status. 1. Strength of Agreement When asked how strongly they agreed with their selection, close to three in four (74%) respondents indicated that they somewhat agreed. Approximately one in four (26%) indicated that they strongly agreed. Supporters of View A (best price) and supporters of View B (speed and other issues) were equally likely to indicate that they strongly agreed with their respective viewpoints. Specifically, among View A supporters, 74 percent indicated that they somewhat agreed with View A, while only 26 percent indicated that they strongly agreed. Similarly, among View B supporters, 74 percent indicated that they somewhat agreed with View B, while only 26 percent strongly agreed with View B. Certain individuals, including those who own stocks both individually and in mutual funds, those who conduct more transactions per year, those with more formal education, and those with higher household incomes are more likely than others to feel strongly about this matter. Specifically, the following significant differences existed within subgroups: Differences Based on Stock Ownership and Investment Behaviors

• Investors who own stocks both individually and in mutual funds were more likely (31%) than those who hold stocks only in mutual funds (23%) to strongly agree with one of the views.

• Individuals who had conducted at least three mutual fund transactions, other than automatic transactions, within the past 12 months were more likely (34%) than those who had conducted no such transactions (24%) to strongly agree with one of the views.

• Investors who had conducted at least one individual stock transaction, other than automatic transactions, within the past 12 months were more likely (34%) than those who had conducted no such transactions (23%) to strongly agree with one of the views.

Likelihood to strongly agree with one of the views did not vary based on whether a respondent owned stocks outside of retirement accounts.

Differences Based on Demographics

• Investors who have at least some post-graduate education were more likely (32%) than those with no formal education beyond high school (22%) to strongly agree with one of the views.

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• Investors with household incomes of at least $75,000 were more likely (31%) than those with household incomes between $25,000 and $50,000 (23%) to strongly agree with one of the views.

Likelihood to strongly agree with either view did not vary based on any of the other demographic variables tested, including the following:

• Gender • Age • Race • Employment status • Marital status • Census region

2. When Price Would Not be the Top Priority for “View A” Supporters When those respondents who selected View A (best price) were asked if there were any circumstances under which best available price would not be their highest priority, almost half (48%) said that best available price would not be their top priority if obtaining the best price meant that they would have to pay high fees. Another 41 percent pointed to the need to conduct transactions quickly. Close to one in six (17%) reported that best available price would always be their highest priority.

When Price Would Not Be the Top Priority for “View A” Supporters (n=1,274)

If getting the best available price meant I would have to pay high fees 48%

If I needed to buy or sell shares quickly 41%

If I wanted to complete the transaction on the Internet rather than go through a stockbroker

11%

Other (specify) 2%

Under no circumstances 17%Q8. “Under which, if any, circumstances would getting the best available stock price not be your highest priority?” Base: Respondents who agreed that best available price should be top priority ( “View A” on questionnaire).

High Fees Of those respondents who selected View A (best price), those who were more likely than others to feel that best available price would be less important if the best price implied high fees included those who own stocks in mutual funds, those who are employed, those who are younger, those with more education, those with higher incomes, and those who have never been married. The significant differences within these subgroups are further described below. Differences Based on Stock Ownership and Investment Behaviors View A (best price) supporters who own stocks in mutual funds were more likely (56%) than View A supporters who own only individual stocks (38%) to indicate that obtaining the best price would be less important if obtaining the best price implied “high fees.”

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Likelihood to indicate that high fees would reduce the importance of obtaining the best price did not vary based on any of the other stock ownership and investment behavior variables tested, including the following:

• Whether a respondent owned stocks outside of retirement accounts • Number of mutual fund transactions conducted within the past year • Number of individual stock transactions conducted within the past year

Differences Based on Demographics The following View A (best price) supporters were more likely than other View A supporters to indicate that high fees would reduce the importance of obtaining the best price:

• View A supporters who are employed (54%), as compared to those who are retired (42%) • View A supporters between the ages of 50 and 64 (53%), as compared to those ages 65

and older (41%) • View A supporters who have at least a 4-year college degree (62%), as compared to those

with less formal education (40%) • View A supporters who have a household income of at least $25,000 (51%), as compared

to those with a household income of less than $25,000 (35%) • View A supporters who have never been married (70%), as compared to those who are

married, separated, divorced, or widowed (46%) Likelihood to indicate that high fees would reduce the importance of obtaining the best price did not vary based on any of the other demographic variables tested, including gender, race, or census region.

Need to Sell Shares Quickly Of those respondents who selected View A (best price), those who felt that best price would no longer be their top priority if they needed to sell shares quickly were more likely to be individuals who own stocks outside of mutual funds, conduct more transactions, are retired, are ages 65 or older, or are widowed. The significant differences within these subgroups are explained below. Differences Based on Stock Ownership and Investment Behaviors The following View A (best price) supporters were more likely than other View A supporters to indicate that best price would be less important if they needed to sell shares quickly:

• View A supporters who own stocks only as individual stocks (45%), as compared to View A supporters who own stocks only in mutual funds (33%)

• View A supporters who had conducted one or two transactions of individual stock within the past year (54%), as compared to View A supporters who had conducted no transactions of individual stock within the past year (41%)

Likelihood to cite the need to sell shares quickly did not vary based on whether a respondent owns stock outside of retirement accounts or based on number of mutual fund transactions conducted within the past year.

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Differences Based on Demographics View A (best price) supporters who are ages 65 or older were more likely (46%) than View A supporters who are between the ages of 50 and 64 (37%) to indicate that the need to sell shares quickly would reduce the importance of obtaining the best price. Others who were more likely to feel this way included the following:

• View A supporters who are retired (45%), as compared to those who are not working (33%)

• View A supporters who are widowed (49%), as compared to those who have never been married (32%)

• View A supporters who have household incomes between $25,000 and $50,000 (46%), as compared to those with household incomes of $75,000 or higher (36%)

Likelihood to cite the “need to sell shares quickly” did not vary based on any of the other demographic variables tested, including gender, education, race, and census region. Completing Transactions Through the Internet The percentage of View A (best price) supporters who indicated that best price would no longer be their top priority if they were completing a transaction on the Internet varied little across subgroups. Only View A supporters with lower incomes or those living in the West census region were more likely than others to indicate that completing a transaction over the Internet would reduce the importance of best price. The significant differences are further explained below. Differences Based on Stock Ownership and Investment Behaviors None. (There were no significant differences based on any of the stock ownership and investment behavior variables examined, including ownership of stocks outside of retirement accounts, ownership of individual stocks or mutual funds, and number of transactions conducted within the past year.) Differences Based on Demographics View A (best price) supporters who have household incomes below $25,000 were more likely (19%) than those with incomes higher than $25,000 (9%) to indicate that completing a transaction over the Internet would reduce the importance of price. Others who were more likely to feel this way included View A supporters in the West census region (14%) as compared to those in the Northeast census region (9%). Likelihood to indicate that completing a transaction over the Internet would reduce the importance of price did not vary based on any of the other demographic variables examined, including gender, age, education, marital status, or race. Under No Circumstances Certain View A (best price) supporters, such as those who own stocks only as individual stocks, those who conducted no individual stock transactions within the past year, those who are retired,

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and those with less formal education were more likely than other View A supporters to say that best price would always be their top priority. Specifically, the significant differences within subgroups are outlined below. Differences Based on Stock Ownership and Investment Behaviors The following View A (best price) supporters were more likely than other View A supporters to feel that best price would always be their top priority:

• View A supporters who own stocks only as individual stocks (20%), as compared to View A supporters who own stocks in mutual funds (14%)

• View A supporters who had conducted no individual stock transactions within the past year (21%), as compared to those who had conducted one or two individual stock transactions within the past year (10%)

A respondent’s likelihood to feel that best price would always be his or her top priority did not vary based on whether the respondent owned stocks outside of retirement accounts or based on number of mutual fund transactions conducted within the past year. Differences Based on Demographics View A (best price) supporters who do not have a four-year college degree (20%) were more likely than View A supporters who have either a four-year college degree or at least some post-graduate education (11%) to feel that best price would always be their top priority. A respondent’s likelihood to feel that best price would always be his or her top priority did not vary based on gender, age, income, marital status, race, or census region. 3. Notification from Broker Of all respondents, more than four in five (86%) either strongly or somewhat agreed that their stock broker or mutual fund manager should notify them before completing a transaction in which best available price is not sought. Specifically, the majority (57%) of respondents strongly agreed that they should be notified if best available price is not sought, and close to three in ten (29%) somewhat agreed.

“If my stock broker or mutual fund firm buys or sells stock without seeking the best available price, they should notify me before they complete the transaction.”

(n=1,917) Strongly agree 57%

Somewhat agree 29%

Somewhat disagree 10%

Strongly disagree 3%

REFUSED 2% Q9. “Please indicate the extent to which you agree or disagree with the following statement.”

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Differences Based on Stock Ownership and Investment Behaviors Those who were more likely than others to strongly agree that they should be notified if best price is not sought include investors who own individual stocks, those who conduct individual stock transactions other than automatic transactions, and those who own stocks outside of retirement accounts. Specifically, the following investors were more likely than their counterparts to strongly agree that they should be notified:

• Investors who own individual stocks were more likely (60%) than those who own stocks only through mutual funds (46%) to strongly agree that they should be notified if the best price is not sought.

• Investors who had conducted one or two individual stock transactions other than automatic transactions within the past year were more likely (67%) than those who had conducted no such transactions within the past year (57%) to strongly agree that they should be notified.

• Individuals who own stocks outside of retirement accounts were more likely (59%) than those who own stocks only within retirement accounts (49%) to strongly agree that they should be notified.

A respondent’s likelihood to strongly agree that he or she should be notified if best price is not sought did not vary based on number of mutual fund transactions conducted within the past year. Differences Based on Demographics In terms of demographic differences, investors ages 65 and older and those with less formal education were more likely than their counterparts to strongly agree that they should be notified if their broker or mutual fund manager does not seek the best available price. Specifically, the differences were as follows:

• Investors who are 65 or older were more likely (60%) than investors between the ages of 50 and 64 (54%) to strongly agree that they should be notified.

• Investors without a four-year college degree were more likely (60%) than those whose highest education level is a four-year college degree (47%) to strongly agree that they should be notified.

There were no significant differences based on gender, income, marital status, race, employment, or census region.

B. IMPORTANT CONSIDERATIONS WHEN INVESTING IN MUTUAL FUNDS OR INDIVIDUAL STOCKS When respondents were asked to rate the importance of price, fees, speed, and confidentiality, the cost-related issues of price and fees received significantly more very important ratings than did speed and confidentiality. Between 70 percent and 80 percent of respondents perceived price and fees to be very important in mutual fund transactions and individual stock transactions.

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Approximately 60 percent of respondents perceived confidentiality to be very important, while fewer than 30 percent perceived speed to be very important. While the majority of respondents rated price as very important in mutual fund transactions and individual stock transactions, respondents were more likely to rate price as very important in individual stock transactions (80%) than to rate price as very important in mutual fund transactions (74%). Moreover, although a minority of respondents identified speed as very important in mutual fund transactions and individual stock transactions, respondents were more likely to rate speed as very important in individual stock transactions (29%) than to rate speed as very important in mutual fund transactions (19%). 1. Importance of Various Considerations When Investing in Mutual Funds Approximately three in four respondents who own shares in mutual funds feel that price and fees are very important in mutual fund transactions. A majority (62%) also feel that confidentiality is very important; however, fewer than one in five (19%) view speed as very important in mutual fund transactions.

Mutual Fund Investors (n=1,342)*: Importance of Various Considerations When Investing in Mutual Funds

Very Important

Somewhat important

Very or Somewhat Important

Price per share 74% 20% 94% Fees charged for the transaction

75% 21% 96%

Confidentiality 62% 23% 85% Speed of the transaction 19% 43% 62% *Base: Respondents who own shares in mutual funds, which may or may not contain stocks. All of these mutual fund investors own stocks in some manner, either through stock mutual funds or as individual stocks. Likelihood to view the above issues as important in mutual fund transactions varied based on stock ownership, investment behaviors, and demographics. The significant differences in the percentage of respondents who rated each item as very important are described below. Price Per Share of Mutual Funds Differences Based on Stock Ownership and Investment Behaviors Compared to their counterparts, mutual fund investors who have conducted at least three mutual fund transactions or at least one individual stock transaction within the past year were more likely to feel that price per share is very important when investing in mutual funds. The significant differences are as follows:

• Investors in mutual funds who had conducted at least three mutual fund transactions within the past year were more likely (79%) than those who had conducted no mutual

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fund transactions, other than automatic transactions, (71%) to feel that price per share is very important when investing in mutual funds.

• Mutual fund investors who had conducted at least one individual stock transaction within the past year were more likely (81%) than those who had not conducted any such transactions (69%) to feel that price per share is very important.

Likelihood to feel that price per share is very important when investing in mutual funds did not vary based on whether a respondent owned individual stocks in addition to mutual funds or whether a respondent owned stocks outside of retirement accounts. Differences Based on Demographics Mutual fund investors who have a relatively high level of education or relatively little education, have incomes between $50,000 and $75,000, or live in the South are more likely than their counterparts to feel that price per share is a very important consideration in mutual fund transactions. The significant differences are as follows:

• Mutual fund investors who have no formal education beyond high school (81%) or those with at least some post-graduate education (76%) were more likely than those with no formal education beyond a four-year college degree (65%) to feel that price per share is very important when investing in mutual funds.

• Investors in mutual funds who have household incomes between $50,000 and $75,000 were more likely (79%) than those with incomes between $25,000 and $50,000 (70%) to feel that price per share is very important.

• Mutual fund investors in the South census region were more likely (82%) than those in other regions (70%) to feel that price per share is very important.

Likelihood to feel that price per share is very important when investing in mutual funds did not vary based on gender, age, marital status, or race. Fees Charged for the Mutual Fund Transaction Differences Based on Stock Ownership and Investment Behaviors Mutual fund investors who had conducted at least one mutual fund transaction within the past year were more likely (79%) than those who had conducted no mutual fund transactions (71%) to feel that transaction fees are very important considerations when investing in mutual funds. Likelihood to feel that transaction fees are very important when investing in mutual funds did not vary based on whether a respondent owned individual stocks in addition to mutual funds, number of individual stock transactions conducted within the past year, or whether a respondent owned stocks outside of retirement accounts. Differences Based on Demographics Mutual fund investors who are ages 65 or older, have incomes of at least $75,000, are employed, or live in the South are more likely than others to perceive transaction fees as very important considerations when investing in mutual funds. The significant differences are as follows:

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• Mutual fund investors who are between the ages of 50 and 64 were more likely (79%) than those ages 65 or older (69%) to feel that transaction fees are very important considerations when making mutual fund investments.

• Mutual fund investors with household incomes of $75,000 or higher were more likely (80%) than those with household incomes between $25,000 and $50,000 (72%) to indicate that transaction fees are very important.

• Employed mutual fund investors were more likely (79%) than those who are retired (71%) to say that transaction fees are very important.

• Mutual fund investors in the South census region were more likely (82%) than those in other regions (71%) to consider transaction fees to be very important.

There were no significant differences based on gender, education, marital status, or race. Confidentiality in Mutual Fund Transactions Differences Based on Stock Ownership and Investment Behaviors Mutual fund investors who own stocks only through retirement accounts were more likely (68%) than those who own stocks outside of retirement accounts (59%) to feel that confidentiality in mutual fund transactions is very important. Likelihood to perceive confidentiality in mutual fund transactions as very important did not vary based on whether an investor owned individual stocks in addition to mutual funds or based on number of mutual fund or individual stock transactions conducted within the past year. Differences Based on Demographics Mutual fund investors who were more likely than others to perceive confidentiality as very important in mutual fund transactions included women or those with household incomes below $25,000. The significant differences are as follows:

• Women were more likely (66%) than men (57%) to indicate that confidentiality is very important in mutual fund transactions.

• Investors with household incomes under $25,000 were more likely (69%) than those with household incomes of $75,000 or higher (58%) to view confidentiality as very important.

There were no significant differences based on age, education, marital status, or census region. Speed of the Mutual Fund Transaction Differences Based on Stock Ownership and Investment Behaviors The importance that mutual fund investors attached to speed of transaction did not vary by any of the stock ownership or investment behavior subgroups examined, including whether an investor owned stocks outside of mutual funds, number of transactions conducted within the past year, or whether an investor owned stocks outside of retirement accounts.

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Not surprisingly, however, mutual fund investors who had previously agreed that the need for best available price should be balanced with speed and other issues (“View B”) were twice as likely (30%) as those who felt that the top priority should be price (“View A”) (15%) to perceive transaction speed as very important. Differences Based on Demographics Mutual fund investors with relatively low or relatively high household incomes as well as non-white investors were more likely than others to view transaction speed as very important in mutual fund transactions. The significant differences are as follows:

• Mutual fund investors with household incomes below $25,000 (26%) and those with household incomes of $75,000 or higher (22%) were more likely than those with household incomes between $50,000 and $75,000 (13%) to feel that transaction speed is very important in mutual fund transactions.

• Non-white investors, including African Americans and others such as the few respondents who identified themselves as Hispanics and Asian Americans, were more likely (29%) than white investors (18%) to perceive transaction speed as very important.

The importance that mutual fund investors attached to speed did not vary based on gender, age, education, marital status, or census region. 2. Importance of Various Considerations When Investing in Individual Stocks

When asked to rate the importance of price, fees, confidentiality, and speed in individual stock transactions, individual stock investors gave the most very important ratings to price. Specifically, eight in ten (80%) individual stock investors rated price as a very important consideration in individual stock transactions. Fees were rated as very important by approximately seven in ten (71%) individual stock investors, and confidentiality was rated as very important by approximately six in ten (61%). Fewer than three in ten (29%) rated speed as very important.

Individual Stock Investors (n=1,387)*: Importance of Various Considerations When Investing in Individual Stocks Very

Important Somewhat important

Very or Somewhat Important

Price per share 80% 14% 94% Fees charged for the transaction

71% 23% 94%

Confidentiality 61% 23% 84% Speed of the transaction 29% 40% 69% *Base: Respondents who own stocks outside of mutual funds. Some of these respondents are also mutual fund investors.

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Likelihood to view the above issues as important in individual stock transactions varied based on stock ownership, investment behaviors, and demographics. The significant differences in the percentage of respondents who rated each item as very important are described below. Price Per Share of Individual Stocks Differences Based on Stock Ownership and Investment Behaviors Individual stock investors who also own stocks in mutual funds or who had conducted at least one individual stock transaction within the past year were more likely than others to perceive price per share as very important in individual stock transactions. The significant differences are as follows:

• Investors in individual stocks who also own stocks in mutual funds were more likely (85%) than those who only own individual stocks (77%) to feel that price per share is very important in individual stock transactions.

• Investors who had conducted at least one individual stock transaction within the past year were more likely (86%) than those who had conducted no individual stock transactions (77%) to feel that price per share is very important.

Likelihood to feel that price is very important in individual stock transactions did not vary based on number of mutual fund transactions conducted per year or based on whether the respondent owned stocks outside of retirement accounts. Differences Based on Demographics Individual stock investors with household incomes of at least $75,000 and those living in the South were more likely than their counterparts to perceive price per share as very important in individual stock transactions.

• Individual stock investors with household incomes of $75,000 or higher were more likely (84%) than those with incomes between $25,000 and $50,000 (77%) to feel that price per share is very important in individual stock transactions.

• Individual stock investors living in the South census region were more likely (85%) than those in the West and Midwest regions (76%) to feel that price per share is very important.

Likelihood to feel that price is very important in individual stock transactions did not vary based on gender, age, education, marital status, employment status, or race. Fees Charged for Individual Stock Transactions Differences Based on Stock Ownership and Investment Behaviors Investors who own stocks in mutual funds as well as individual stocks were more likely (76%) than those who only own individual stocks (67%) to feel that fees are a very important consideration in individual stock transactions.

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Likelihood to feel that fees are very important in individual stock transactions did not vary based on number of mutual fund or individual stock transactions conducted per year or whether a respondent owned stocks outside of retirement accounts. Differences Based on Demographics Individual stock investors who are male, between the ages of 50 and 64, have household incomes of at least $75,000, or are married are more likely than their counterparts to feel that fees are very important in individual stock transactions. The significant differences within these subgroups are as follows:

• Men who invest in individual stocks were more likely (74%) than women (66%) to perceive fees as very important in individual stock transactions.

• Individual stock investors between the ages of 50 and 64 were more likely (75%) than those ages 65 and older (66%) to consider fees to be very important.

• Investors with household incomes of $75,000 or higher (75%) were more likely than those with incomes below $25,000 (65%) to feel that fees are very important.

• Investors who are married were more likely (73%) than those who have never been married (60%) to feel that fees are very important.

Likelihood to feel that fees are very important in individual stock transactions did not vary based on education, employment status, race, or census region.

Confidentiality in Transactions of Individual Stocks

Differences Based on Stock Ownership and Investment Behaviors Individual stock investors who report that they only own stocks in retirement accounts were more likely (69%) than those who own stocks outside of retirement accounts (59%) to feel that confidentiality is very important in transactions of individual stocks. Likelihood to feel that confidentiality is very important in individual stock transactions did not vary based on whether a respondent owned stocks in mutual funds in addition to individual stocks or based on number of mutual fund or individual stock transactions conducted per year. Differences Based on Demographics Individual stock investors who are employed, who are between the ages of 50 and 64, or who have no formal education beyond high school were more likely than their counterparts to consider confidentiality to be a very important aspect of individual stock transactions. Specifically, the significant differences are as follows:

• Individual stock investors who are between the ages of 50 and 64 were more likely (65%) than those who are 65 or older (56%) to feel that confidentiality is very important in individual stock transactions.

• Similarly, employed investors were more likely (64%) than those who are retired (56%) to rate confidentiality as very important.

• Investors with no formal education beyond high school were more likely (66%) than those with at least a four-year college degree (54%) to rate confidentiality as very important.

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Likelihood to feel that confidentiality is very important in individual stock transactions did not vary based on gender, household income, marital status, race, or census region.

Speed of Individual Stock Transactions

Differences Based on Stock Ownership and Investment Behaviors Individual stock investors who own stock in mutual funds in addition to individual stocks outside mutual funds were more likely (33%) than those who own only individual stocks (27%) to rate speed as very important in individual stock transactions. Likelihood to view speed as very important in individual stock transactions did not vary based on any of the other stock ownership or investment variables examined, including number of mutual fund or individual stock transactions conducted per year or whether a respondent owned stocks outside of retirement accounts. As might be expected, individual stock investors who had previously agreed that the desire for best available price should be balanced with other issues such as speed (“View B”) were more than twice as likely (45%) as those who agreed that price should be the top priority (“View A”) (21%) to feel that speed is very important in individual stock transactions. Differences Based on Demographics Individual stock investors who are between the ages of 50 and 64 were more likely (32%) than those who are 65 or older (26%) to feel that speed is very important in individual stock transactions. Likelihood to view speed as very important in individual stock transactions did not vary based on any of the other demographic variables, including gender, education, household income, marital status, employment status, race, or census region.

C. CONFIDENCE IN FINANCIAL SERVICES PROFESSIONALS

The majority of respondents (74%) reported that they prefer to have others manage their investments for them, although they do like to be involved in major investment decisions. In fact, close to two in three (66%) indicated that they rely on either a personal broker/financial advisor, an employer-sponsored broker/financial advisor, or a banker when making investment decisions. While investor reliance on financial services professionals may stem in part from a desire to reduce demands on their own time, most investors appear to lack confidence in their ability to conduct trades and make investment decisions without the assistance of financial services professionals. Specifically, close to three in four respondents (72-76%) have more confidence in

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the abilities of mutual fund managers or stock brokers to conduct transactions for them than they have in their own abilities to conduct transactions. In contrast, only one in three (33%) are confident in their ability to buy and sell individual stocks without the assistance of stock brokers. Interestingly, although subsequent sections of this report reveal widespread concerns about the securities industry on issues such as a lack of ethics and a lack of accountability, most respondents (76%) indicate that they are at least somewhat confident that “the financial institutions that handle my money manage my accounts according to what is in my best interest.” This apparent contradiction may reflect differences in interpretations of the terms “financial institutions” and “securities industry” as it is likely that the term “securities industry” brings to mind entities, such as brokerage firms, mutual fund firms, and stock exchanges, whose primary functions involve trading stocks. In contrast, it’s likely that respondents interpret “financial institutions” more broadly to include banks, which are likely to be perceived as separate from the securities industry. Yet another possibility is that respondents are more confident about their own banks and investment firms than they are about the industry as a whole, which may contribute to this relatively high level of confidence in institutions that “handle my money.”

Confidence in Financial Services Professionals (n=1,917)

Strongly agree

Somewhat agree

Strongly or Somewhat

agree I am confident that the financial institutions that handle my money manage my accounts according to what is in my best interests.

24% 52% 76%

I have more confidence in the abilities of mutual fund managers than I have in my ability to buy and sell individual stocks on my own.

32% 44% 76%

I prefer to have others manage my investments for me, but I like to be involved in major investment decisions.

35% 39% 74%

I have more confidence in the abilities of stock brokers than I have in my ability to buy and sell individual stocks on my own.

30% 42% 72%

I prefer to make investment decisions on my own without the assistance of others.

9% 28% 37%

I am confident in my ability to buy and sell individual stocks without the assistance of stock brokers.

9% 24% 33%

Likelihood to agree with the above statements varied based on stock ownership, investment behavior, and demographics. The significant differences in the percentage of respondents who strongly agreed with each item are described below.

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Confidence in Financial Institutions that Handle My Money Differences Based on Stock Ownership and Investment Behaviors Investors who own stocks only in retirement accounts were more likely (29%) than those who own stocks outside of retirement accounts (23%) to strongly agree that they are confident that their financial institutions manage their money in their best interests. There were no significant differences based on any of the other stock ownership or investment behaviors examined, including number of mutual fund transactions conducted within the past year, number of individual stock transactions conducted within the past year, or whether a respondent owned individual stocks or stocks in mutual funds. Differences Based on Demographics Women, investors ages 65 or older, those who are widowed, those with no education beyond high school, or those with household incomes below $75,000 were more likely than others to strongly agree that their financial institutions manage their money with their best interests in mind. Specifically, the significant differences are as follows:

• Women were more likely (28%) than men (21%) to strongly agree. • Investors ages 65 or older were more likely (29%) than those between the ages of 50 and

64 (21%) to strongly agree. • Similarly, widowed respondents were more likely (32%) than married respondents (23%)

to strongly agree. • Investors with no formal education beyond high school were more likely (30%) than

those with at least some college education (20%) to strongly agree. • Individuals with household incomes below $75,000 were more likely (26%) than those

with incomes of $75,000 or higher (17%) to strongly agree. There were no significant differences based on employment status, race, or census region. Confidence in Abilities of Mutual Fund Managers vs. Confidence in Own Abilities Differences Based on Stock Ownership and Investment Behaviors Investors who own stocks only in mutual funds, own stocks only in retirement accounts or who conducted relatively few individual stock or mutual fund transactions within the past year were more likely than their counterparts to strongly agree that they have more confidence in the abilities of mutual fund managers than they have in their ability to buy and sell individual stocks on their own. The significant differences are as follows:

• Respondents who own stocks only in mutual funds were more likely (47%) than those who own individual stocks outside of mutual funds (27%) to strongly agree.

• Respondents who own stocks only in retirement accounts were more likely (41%) than those who own stocks outside of retirement accounts (29%) to strongly agree.

• Compared to investors who had conducted three or more mutual fund transactions within the past year (31%), those who had conducted fewer than three such transactions were more likely (40%) to strongly agree.

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• Compared to investors who had conducted three or more individual stock transactions within the past year (16%), those who had conducted fewer than three individual stock transactions were more likely (29%) to strongly agree.

Interestingly, significant differences with respect to a respondent’s likelihood to strongly agree were discovered within each category of stock ownership and investment behavior, indicating that confidence in one’s ability to buy and sell stocks is associated with each of the variables examined. Differences Based on Demographics Women, those with household incomes below $75,000, those who have never been married, or those living in the Midwest or South were more likely than other investors to strongly agree that they have more confidence in the abilities of mutual fund managers than they have in their ability to buy and sell individual stocks on their own. Specifically, the significant differences are as follows:

• Women were more likely (35%) than men (28%) to strongly agree. • Investors with household incomes between $25,000 and $75,000 were more likely (34%)

than those with incomes of $75,000 or higher (26%) to strongly agree. • Individuals who have never been married were more likely (43%) than those who are

married (31%) or divorced (29%) to strongly agree. • Individuals in the Midwest (35%) and South (33%) census regions were more likely than

those in the Northeast (27%) to strongly agree. A respondent’s likelihood to strongly agree that they have more confidence in the abilities of mutual fund managers than in their own abilities did not vary based on the following demographic variables:

• Age • Education level • Employment status • Race

Desire To Have Others Manage Investments, But Be Involved in Major Decisions Differences Based on Stock Ownership and Investment Behaviors Investors who had conducted one or two mutual fund transactions within the past year were more likely (40%) than those who had conducted no such transactions (32%) to strongly agree that they prefer to have others manage their investments even though they like to be involved in major investment decisions. The following stock ownership and investment behavior variables were associated with no significant differences in a respondent’s likelihood to strongly agree that they prefer to have others manage their investments even though they like to be involved in major investment decisions:

• Whether a respondent owns stocks individually or in mutual funds • Whether a respondent owns stocks outside of retirement accounts

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• Number of individual stock transactions conducted per year Differences Based on Demographics Women; investors living in the Midwest and South; or non-white investors, including African Americans and the small number of Asian American and Hispanic respondents, were more likely than others to strongly agree that they prefer to have others manage their investments even though they like to be involved in major investment decisions. Specifically, the significant differences are as follows:

• Thirty-nine percent of women strongly agreed, as compared to only 31 percent of men. • Forty-three percent of non-white investors strongly agreed, whereas only 33 percent of

white investors strongly agreed. • Thirty-seven percent of investors in the Midwest census region, and 38 percent of those

in the South strongly agreed; as compared to only 29 percent of those in the Northeast. A respondent’s likelihood to strongly agree that they prefer to have others manage their investments did not vary based on the following demographic variables:

• Age • Education • Household income • Marital status • Employment status

Confidence in Abilities of Stock Brokers vs. Confidence in Own Abilities Differences Based on Stock Ownership and Investment Behaviors Investors who own stocks only in mutual funds, who own stocks only in retirement accounts, or who conducted relatively few mutual fund or individual stock transactions within the past year were more likely than their counterparts to strongly agree that they have more confidence in the abilities of stock brokers to buy and sell stocks than in their own abilities. The significant differences are as follows:

• Investors who own stocks only in mutual funds were more likely (40%) than those who own individual stocks outside of mutual funds (27%) to strongly agree.

• Investors who had conducted fewer than three mutual fund transactions within the past year were more likely (34%) than those who had conducted at least three mutual fund transactions (24%) to strongly agree.

• Investors who had conducted fewer than three individual stock transactions within the past year were more likely (28%) than those who had conducted at least three individual stock transactions (18%) to strongly agree.

• Thirty-seven percent of investors who own stocks only in retirement accounts strongly agreed, compared to only 28 percent of those who own stocks outside of retirement accounts.

Likelihood to strongly agree with this statement varied by each category of stock ownership and investment behavior examined, indicating that confidence in one’s ability to buy and sell stocks is associated with each of the investment variables examined.

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Differences Based on Demographics Women, investors with no formal education beyond high school, investors with household incomes below $75,000, investors who have never been married, or investors who live in the Midwest are more likely than others to strongly agree that they have more confidence in the abilities of stock brokers than in their own abilities. The significant differences are as follows:

• Thirty-seven percent of women strongly agreed, whereas only 23 percent of men strongly agreed.

• Thirty-three percent of investors with no formal education beyond high school strongly agreed, as compared to only 25 percent of those with at least some post-graduate education.

• Thirty-three percent of investors with household incomes below $75,000 strongly agreed, as compared to only 20 percent of those with incomes of $75,000 or higher.

• Forty-one percent of investors who have never been married strongly agreed, as compared to only 28 percent of married investors.

• Thirty-six percent of investors in the Midwest census region strongly agreed, as compared to only 28 percent of investors across all other regions.

A respondent’s likelihood to strongly agree with this statement did not vary based on the following demographic variables:

• Age • Employment status • Race

Desire to Make Investment Decisions Without Assistance from Others Differences Based on Stock Ownership and Investment Behaviors Investors who own individual stocks outside of mutual funds, who conducted at least three individual stock or mutual fund transactions within the past year, or who own stocks outside of retirement accounts were more than twice as likely as other investors to strongly agree that they prefer to make investment decisions without assistance from others. Specifically, the significant differences within these subgroups are as follows:

• Eleven percent of investors who own individual stocks outside of mutual funds strongly agreed, as compared to only five percent of those who own stocks only in mutual funds.

• Twenty-one percent of investors who had conducted at least three individual stock transactions within the past year strongly agreed, as compared to only eight percent of those who had conducted fewer than three such transactions.

• Fourteen percent of investors who had conducted at least three mutual fund transactions within the past year strongly agreed, as compared to only six percent of those who had conducted fewer than three such transactions.

• Eleven percent of investors who own stocks outside of retirement accounts strongly agreed, as compared to only four percent of investors who own stocks only in retirement accounts.

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Significant differences with respect to a respondent’s likelihood to strongly agree with this statement were discovered within each category of stock ownership and investment behavior, indicating that preference for making investment decisions independently is associated with each of the investment variables examined. Furthermore, respondents who agreed with “View B,” meaning that they feel that best price should be balanced with speed and other issues, were more likely (13%) than “View A” supporters (8%) to strongly agree that they prefer to make investment decisions on their own. Differences Based on Demographics Men, investors ages 65 and older, those with at least some post-graduate education, those with relatively high or relatively low household incomes, or those who are retired were more likely than their counterparts to strongly agree that they prefer to make investment decisions without assistance from others. The significant differences within each of these subgroups are as follows:

• Men were more likely (11%) than women (7%) to strongly agree. • Investors ages 65 and older were more likely (12%) than those between the ages of 50

and 64 (7%) to strongly agree. • Investors with at least some post-graduate education were more likely (14%) than those

without any post-graduate education (8%) to strongly agree. • Investors with household incomes below $25,000 as well as those with household

incomes of $75,000 or higher were more likely (12%) than those with incomes between $25,000 and $50,000 (7%) to strongly agree.

• Retired investors were more likely (11%) than employed investors (7%) to strongly agree.

A respondent’s likelihood to strongly agree that they prefer to make investment decisions independently did not vary based on the following demographic variables:

• Marital status • Race • Census region

Confidence in Ability to Buy and Sell Stocks Without Assistance from Stock Brokers Differences Based on Stock Ownership and Investment Behaviors Compared to other investors, those who own individual stocks outside of mutual funds, own stocks outside of retirement accounts, or conducted at least three individual stock or mutual fund transactions within the past year were more likely to strongly agree that they are confident in their ability to buy and sell stocks without the assistance of brokers. Specifically, the significant differences are as follows:

• Investors who own individual stocks outside of mutual funds were more than three times as likely (10%) as those who own stocks only in mutual funds (3%) to strongly agree.

• Investors who own stocks outside of retirement accounts were more than twice as likely (10%) as investors who own stocks only in retirement accounts (4%) to strongly agree.

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• Investors who had conducted at least three mutual fund transactions within the past year were more than three times as likely (18%) as those who had conducted fewer than three such transactions (5%) to strongly agree.

• Twenty-three percent of investors who had conducted at least three individual stock transactions within the past year strongly agreed, as compared to only seven percent of those who had conducted fewer than three such transactions.

Likelihood to strongly agree with this statement varied by each category of stock ownership and investment behavior examined, indicating that confidence in one’s ability to buy and sell stocks without assistance from a broker is associated with each of the investment variables examined. Differences Based on Demographics Compared to other investors, those who are men, have at least some post-graduate education, have relatively high household incomes, are retired, or live in the South or West were more likely to strongly agree that they are confident in their ability to buy and sell stocks without the assistance of brokers. These significant differences are as follows:

• Men were more likely (11%) than women (6%) to strongly agree. • Investors with at least some post-graduate education were more likely (12%) than those

with no formal education beyond high school (7%) to strongly agree. • Investors with household incomes of $75,000 or higher were more likely (12%) than

those with household incomes between $25,000 and $50,000 (7%) to strongly agree. • Retired investors were more likely (11%) than employed investors (6%) to strongly

agree. • Investors living in the South census region (10%) and the West census region (10%) were

twice as likely as those living in the Midwest (5%) to strongly agree. A respondent’s likelihood to strongly agree that they are confident in their ability to buy and sell stocks without the assistance of a broker did not vary based on the following demographic variables:

• Age • Marital status • Race

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D. CONCERNS AND WORRIES ABOUT THE STOCK MARKET Fear of losing money (63%), lack of ethics (61%), and general concerns about the state of the economy (55%) top the list of respondent concerns about the stock market. More than half of respondents selected these items when asked to select from a list of eight possible concerns. In contrast, fewer than one in three (29%) are concerned about the impact of future terrorist attacks on the stock market.

Concerns and Worries About the Stock Market* (n=1,917)

Fear of losing money 63%

Lack of ethics in the marketplace 61%

The state of the economy 55%

Significant stock market declines 46%

Accuracy of published financial statements 38%

Lack of confidence in the stock market generally

31%

Fear that future terrorist attacks may cause a significant stock market decline

29%

No concerns 4%

Other (specify) 3% *Multiple responses accepted. Likelihood to identify the above items as concerns varied by stock ownership, investment behaviors, and demographics. The significant differences are described below. Fear of Losing Money Differences Based on Stock Ownership and Investment Behaviors Investors who own stocks only in retirement accounts or who have conducted relatively few transactions within the past year were more likely than other investors to identify fear of losing money as a concern. Specifically, the following individuals were more likely than their counterparts to name fear of losing money:

• Investors who own stocks only in retirement accounts (69%), as compared to those who own stocks outside of retirement accounts (61%)

• Investors who had conducted no mutual fund transactions within the past year (70%), as compared to those who had conducted at least one such transaction (57%)

• Investors who had conducted fewer than three individual stock transactions within the past year (65%), as compared to those who had conducted at least three such transactions (49%)

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A respondent’s likelihood to name fear of losing money did not vary based on whether the respondent owned individual stocks or owned stocks only in mutual funds. Differences Based on Demographics Women, investors with less formal education, investors with lower household incomes, those who are divorced, or those in the Northeast were more likely than other investors to name fear of losing money. Specifically, the following individuals were more likely than their counterparts to name fear of losing money:

• Women (69%), as compared to men (57%) • Investors with no formal education beyond either high school or an associates degree

(65%), as compared to those with at least some post-graduate education (56%) • Investors with household incomes between $25,000 and $50,000 (68%), as compared to

those with incomes of $50,000 or higher (57%) • Investors who are divorced (74%), as compared to those who are married (59%) • Investors in the Northeast census region (68%), as compared to those in the Midwest

(57%) A respondent’s likelihood to name fear of losing money did not vary based on the following demographic variables:

• Age • Employment status • Race

Lack of Ethics in the Marketplace Differences Based on Stock Ownership and Investment Behaviors Compared to other investors, those who own stocks in mutual funds or those who had conducted at least three individual stock transactions within the past year were more likely to identify lack of ethics in the marketplace as a concern. Specifically, the following individuals were more likely than their counterparts to name lack of ethics in the marketplace:

• Investors who own stocks in mutual funds (65%), as compared to those who only own individual stocks outside of mutual funds (56%)

• Investors who had conducted at least three individual stock transactions within the past year (66%), as compared to those who had conducted no such transactions (55%)

A respondent’s likelihood to name lack of ethics in the marketplace did not vary based on the following stock ownership and investment behavior variables:

• Number of mutual fund transactions conducted within the past year • Whether a respondent owned stocks outside of retirement accounts

Interestingly, respondents who agreed with the previously described “View B,” meaning that they feel that best price should be balanced with speed and other issues, were more likely (67%) than “View A” supporters (59%) to name lack of ethics in the marketplace as a concern.

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Differences Based on Demographics Investors living in the Northeast (67%) and West census regions (66%) were more likely than those living in the Midwest (56%) and South (58%) to name lack of ethics in the marketplace as a concern. A respondent’s likelihood to identify lack of ethics in the marketplace as a concern did not vary based on any of the other demographic variables, including the following:

• Gender • Age • Education • Household income • Marital status • Employment status • Race

State of the Economy Differences Based on Stock Ownership and Investment Behaviors Compared to other investors, those who own stocks in mutual funds or who conducted one or two mutual fund or individual stock transactions within the past year were more likely to identify the state of the economy as a concern. Specifically, the following individuals were more likely than their counterparts to name the state of the economy:

• Investors who own stocks in mutual funds (59%), as compared to those who own only individual stocks outside of mutual funds (50%)

• Investors who had conducted one or two mutual fund transactions within the past year (66%), as compared to those who had conducted no such transactions (55%)

• Investors who had conducted one or two individual stock transactions within the past year (58%), as compared to those who had conducted no such transactions (50%)

A respondent’s likelihood to identify the state of the economy as a concern did not vary based on whether the respondent owned stocks outside of retirement accounts. Differences Based on Demographics Compared to other investors, those who are neither white nor Hispanic, have at least some post-graduate education, or live in the Northeast are more likely to identify the state of the economy as a concern. Specifically, the following individuals were more likely than their counterparts to name the state of the economy:

• Investors who have at least some post-graduate education (61%), as compared to investors with no formal education beyond a four-year college degree (51%)

• Non-white investors, including African Americans and the small number of Hispanic and Asian American respondents (64%), as compared to white investors (53%)

• Investors in the Northeast census region (61%), as compared to investors in the other three census regions (53%)

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A respondent’s likelihood to identify the state of the economy as a concern did not vary based on the following demographic variables:

• Gender • Age • Household income • Marital status • Employment status

Significant Stock Market Declines Differences Based on Stock Ownership and Investment Behaviors Compared to other investors, those who own both individual stocks and shares of stock mutual funds or those who had conducted one or two individual stock transactions within the past year were more likely to identify significant stock market declines as a concern. Specifically, the following individuals were more likely than their counterparts to name significant stock market declines:

• Investors who own both individual stocks and shares of stock mutual funds (52%), as compared to those who only own individual stocks or only own stocks in mutual funds (44%)

• Investors who had conducted one or two individual stock transactions within the past year (58%), as compared to those who had conducted no such transactions or who had conducted three or more such transactions (44%)

A respondent’s likelihood to identify significant stock market declines as a concern did not vary based on the following stock ownership and investment behavior variables:

• Number of mutual fund transactions conducted within the past year • Whether a respondent owned stocks outside of retirement accounts

Differences Based on Demographics Likelihood to identify significant stock market declines as a concern did not vary based on any of the demographic variables tested. Accuracy of Published Financial Statements Differences Based on Stock Ownership and Investment Behaviors Compared to other investors, those who own both individual stocks and shares of stock mutual funds, own stocks outside of retirement accounts, or who had conducted relatively more individual stock or mutual fund transactions within the past year were more likely to view accuracy of published financial statements as a concern. Specifically, the following individuals were more likely than their counterparts to express concern about accuracy of published financial statements:

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• Investors who own both individual stocks and shares of stock mutual funds (45%), as compared to investors who own only individual stocks or only stocks in mutual funds (35%)

• Investors who own stocks outside of retirement accounts (39%), as compared to those who own stocks only in retirement accounts (33%)

• Investors who had conducted at least one mutual fund transaction within the past year (45%), as compared to those who had conducted no such transactions (36%)

• Investors who had conducted at least three individual stock transactions within the past year (48%), as compared to those who had conducted no such transactions (36%)

A respondent’s likelihood to identify accuracy of published financial statements as a concern varied by each category of stock ownership and investment behavior tested, indicating that inclination to view this as a concern is associated with each of the investment variables examined. Differences Based on Demographics Compared to other investors, those with at least a four-year college degree, with household incomes of at least $25,000, or those living in the Northeast were more likely to identify accuracy of published financial statements as a concern. Specifically, the following individuals were more likely than their counterparts to express concern about accuracy of published financial statements:

• Investors with at least a four-year college degree (43%), as compared to those with no formal education beyond high school (33%)

• Investors with household incomes of at least $25,000 (40%), as compared to those with incomes below $25,000 (30%)

• Investors in the Northeast census region (43%), as compared to those in the Midwest (35%)

A respondent’s likelihood to identify accuracy of published financial statements as a concern did not vary based on the following demographic variables:

• Gender • Age • Marital status • Employment status • Race

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Lack of Confidence in the Stock Market Generally Differences Based on Stock Ownership and Investment Behaviors Compared to other investors, those who had conducted relatively few transactions within the past year or who own stocks only in retirement accounts were more likely to identify lack of confidence in the stock market generally as a concern. Specifically, the following individuals were more likely than their counterparts to express a lack of confidence in the stock market generally:

• Investors who had conducted no mutual fund transactions within the past year (34%), as compared to those who had conducted at least three such transactions (24%)

• Investors who had conducted fewer than three individual stock transactions within the past year (33%), as compared to those who had conducted at least three such transactions (21%)

• Investors who own stocks only in retirement accounts (36%), as compared to those who own stocks outside of retirement accounts (29%)

Likelihood to express a lack of confidence in the stock market generally did not vary based on whether a respondent owned individual stocks or stocks in mutual funds. Differences Based on Demographics Compared to other investors, those with relatively low household incomes, those who are divorced, or those who are neither white nor Hispanic are more likely to identify lack of confidence in the stock market generally as a concern. Specifically, the following individuals were more likely than their counterparts to express a lack of confidence in the stock market generally:

• Investors with household incomes between $25,000 and $50,000 (33%), as compared to those with incomes of $75,000 or higher

• Investors who are divorced (40%), as compared to investors who are either married or widowed (29%)

• Non-white investors, including African Americans and the small number of Hispanic and Asian American respondents (43%), as compared to white investors (28%)

Likelihood to express a lack of confidence in the stock market generally did not vary based on the following demographic variables:

• Gender • Age • Education • Employment status • Census region

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Fear that Future Terrorist Attacks May Cause A Significant Stock Market Decline Differences Based on Stock Ownership and Investment Behaviors Compared to other investors, those who own stocks only in mutual funds or those who had conducted at least three individual stock transactions within the past year were more likely to express concern that future terrorist attacks may cause a significant stock market decline. Specifically, the following individuals were more likely than their counterparts to identify this as an investing concern:

• Investors who own stocks only in mutual funds (33%), as compared to those who only own individual stocks (26%)

• Investors who had conducted at least three individual stock transactions within the past year (31%), as compared to those who had conducted no such transactions (24%)

Likelihood to identify the fear of future terrorist attacks as an investing concern did not vary based on the following stock ownership and investment behavior variables:

• Number of mutual fund transactions conducted within the past year • Whether a respondent owned stocks outside of retirement accounts

Differences Based on Demographics Investors in the Northeast census region were more likely (33%) than investors in the West (25%) to express concern that future terrorist attacks may cause a significant stock market decline. Likelihood to identify this as an investing concern did not vary based on any of the other demographic variables examined, including the following:

• Gender • Age • Education • Household income • Marital status • Employment status • Race

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E. PROBLEMS FOR THE SECURITIES INDUSTRY

Dishonesty (62%), lack of accountability (62%), and lack of consumer protection and means of recourse for harmed investors (60%) are those issues that respondents are most likely to view as “big problems” for the industry. More than half also view insider trading (57%) and lack of internal controls and checks (52%) as “big problems.”

Problems for the Securities Industry (n=1,917)

Big problem Small problem

Not a problem

Don’t know / Refused

Dishonesty 62% 28% 2% 8%Lack of accountability 62% 25% 3% 10%Lack of consumer protection and means of recourse for harmed investors

60% 27% 3% 11%

Insider trading 57% 30% 2% 11%Lack of internal controls and checks

52% 28% 4% 15%

The poor economy 47% 33% 11% 8%Insufficient disclosure of risks to investors

46% 33% 9% 12%

Lack of confidence from the public

44% 39% 6% 12%

Incompetent fund managers 44% 39% 5% 12%Incompetent brokers 42% 41% 4% 13%Conflict of interest between fund managers and fund shareholders

42% 34% 6% 18%

Transaction fees that are too high

42% 40% 7% 13%

Conflict of interest between brokers and shareholders

40% 37% 7% 21%

Conflict of interest between fund board of directors and fund managers

40% 32% 5% 23%

Market volatility 31% 43% 13% 13% Significant Differences Within Subgroups As described below, a respondent’s likelihood to identify each of the above items as “big problems” for the securities industry varied by stock ownership, investment behavior, and demographics. The following discussion of significant differences focuses only on the following variables:

• Whether a respondent owned individual stocks and/or stock mutual funds

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• Number of individual stock transactions conducted within the past year • Education • Household income

Dishonesty Investors who own stocks in mutual funds were more likely (65%) than those who only own individual stocks outside of mutual funds (58%) to describe dishonesty as a “big problem” for the securities industry. Likelihood to identify dishonesty as a “big problem” for the securities industry did not vary based on the following variables:

• Number of individual stock transactions conducted within the past year • Education • Household income

Lack of Accountability Investors who own stocks only in mutual funds were more likely (68%) than those who own stocks only as individual stocks (58%) to identify lack of accountability as a “big problem” for the securities industry. Likelihood to describe lack of accountability as a “big problem” did not vary based on any of the other variables tested, including the following:

• Number of individual stock transactions conducted within the past year • Education • Household income

Lack of Consumer Protection and Means of Recourse for Harmed Investors Investors with only some college education or an associates degree were more likely (64%) than those with a four-year college degree (55%) to identify lack of consumer protection and means of recourse for harmed investors as a “big problem” for the securities industry. Likelihood to describe lack of consumer protection and means of recourse for harmed investors as a “big problem” did not vary based on any of the other variables tested, including the following:

• Whether a respondent owned individual stocks and/or stocks in mutual funds • Number of individual stock transactions conducted within the past year • Household income

Insider Trading Compared to other investors, those who own stocks only in mutual funds or who have household incomes below $25,000 were more likely to view insider trading as a “big problem” for the

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securities industry. Specifically, the following individuals were more likely than their counterparts to describe it as a big problem:

• Investors who own stocks only in mutual funds (62%), as compared to those who own stocks only as individual stocks (54%)

• Investors with household incomes below $25,000 (62%), as compared to those with household incomes of $75,000 or higher (53%)

Likelihood to describe insider trading as a “big problem” did not vary based on any of the other variables tested, including the following:

• Number of individual stock transactions conducted within the past year • Education

Lack of Internal Controls and Checks Likelihood to describe lack of internal controls and checks as a “big problem” did not vary based on any of the variables tested, including the following:

• Whether a respondent owned individual stocks and/or stocks in mutual funds • Number of individual stock transactions conducted within the past year • Education • Household income

The Poor Economy Compared to other investors, those with relatively less formal education or with relatively low household incomes were more likely to identify the poor economy as a “big problem” for the securities industry. Specifically, the following individuals were more likely than their counterparts to describe it as a big problem:

• Investors who have no formal education beyond an associates degree (51%), as compared to those who have a four-year college degree (39%)

• Investors with household incomes between $25,000 and $50,000 (50%), as compared to those who have incomes of $75,000 or higher (43%)

Likelihood to describe the poor economy as a “big problem” did not vary based on any of the other variables tested, including the following:

• Whether a respondent owned individual stocks and/or stocks in mutual funds • Number of individual stock transactions conducted within the past year

Insufficient Disclosure of Risks to Investors Investors with household incomes between $25,000 and $50,000 were more likely (49%) than those with household incomes of $75,000 or higher (41%) to identify insufficient disclosure of risks to investors as a “big problem” for the securities industry. Likelihood to describe insufficient disclosure of risks to investors as a “big problem” did not vary based on any of the other variables tested, including the following:

• Whether a respondent owned individual stocks and/or stocks in mutual funds

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• Number of individual stock transactions conducted within the past year • Education

Lack of Confidence from the Public Likelihood to describe lack of confidence from the public as a “big problem” for the securities industry did not vary based on any of the variables tested, including the following:

• Whether a respondent owned individual stocks and/or stocks in mutual funds • Number of individual stock transactions conducted within the past year • Education • Household income

Incompetent Fund Managers Compared to other investors, those who have no formal education beyond an associates degree or who have household incomes below $50,000 were more likely to identify incompetent fund managers as a “big problem” for the securities industry. Specifically, the following individuals were more likely than their counterparts to describe this as a big problem:

• Investors who have no formal education beyond an associates degree (47%), as compared to those who have at least a four-year college degree (37%

• Investors who have household incomes below $50,000 (48%), as compared to those who have incomes of $50,000 or higher (38%)

Likelihood to describe incompetent fund managers as a “big problem” for the securities industry did not vary based on any of the other variables tested, including the following:

• Whether a respondent owned individual stocks and/or stocks in mutual funds • Number of individual stock transactions conducted within the past year

Incompetent Brokers Likelihood to describe incompetent brokers as a “big problem” for the securities industry did not vary based on any of the variables tested, including the following:

• Whether a respondent owned individual stocks and/or stocks in mutual funds • Number of individual stock transactions conducted within the past year • Education • Household income

Conflict of Interest Between Fund Managers and Fund Shareholders Compared to other investors, those who own both individual stocks and shares of stock mutual funds or those who conducted a relatively high number of stock transactions within the past year were more likely to identify conflict of interest between fund managers and fund shareholders as a “big problem” for the securities industry. Specifically, the following individuals were more likely than their counterparts to describe this as a big problem:

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• Investors who own both individual stocks and shares of stock mutual funds (48%), as compared to investors who own stocks only as individual stocks or only in stock mutual funds (40%)

• Investors who had conducted at least three individual stock transactions within the past year (49%), as compared to those who had conducted no such transactions (41%)

Likelihood to describe conflict of interest between fund managers and fund shareholders as a “big problem” for the securities industry did not vary based on any of the other variables tested, including the following:

• Education • Household income

Transaction Fees That Are Too High Compared to other investors, those with no formal education beyond high school or with household incomes below $50,000 were more likely to identify transaction fees that are too high as a “big problem” for the securities industry. Specifically, the following individuals were more likely than their counterparts to describe this as a big problem:

• Investors with no formal education beyond high school (47%), as compared to those with at least some college education (38%)

• Investors with household incomes below $50,000 (44%), as compared to those with incomes between $50,000 and $75,000 (36%)

Likelihood to identify transaction fees that are too high as a “big problem” for the securities industry did not vary based on any of the other variables tested, including the following:

• Whether a respondent owned individual stocks and/or stocks in mutual funds • Number of individual stock transactions conducted within the past year

Conflict of Interest Between Brokers and Shareholders Compared to other investors, those who own both individual stocks and shares of stock mutual funds or those who have at least a four-year college degree were more likely to identify conflict of interest between brokers and shareholders as a “big problem” for the securities industry. Specifically, the following individuals were more likely than their counterparts to describe this as a big problem:

• Investors who own both individual stocks and shares of stock mutual funds (45%), as compared to those who only own individual stocks (37%)

• Investors who have at least a four-year college degree (44%), as compared to those who have no formal education beyond high school (36%)

Likelihood to identify conflict of interest between brokers and shareholders as a “big problem” for the securities industry did not vary based on any of the other variables tested, including the following:

• Number of individual stock transactions conducted within the past year • Household income

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Conflict of Interest Between Fund Board of Directors and Fund Managers Investors who had conducted at least three individual stock transactions within the past year were more likely (47%) than those who had conducted no such transactions (37%) to identify conflict of interest between fund board of directors and fund managers as a “big problem” for the securities industry. Likelihood to identify conflict of interest between fund board of directors and fund managers as a “big problem” for the securities industry did not vary based on any of the other variables tested, including the following:

• Whether a respondent owned individual stocks and/or stocks in mutual funds • Education • Household income

Market Volatility Investors with no formal education beyond high school (34%) were more likely than those with a four-year college degree (27%) to identify market volatility as a “big problem” for the securities industry. Likelihood to identify market volatility as a “big problem” for the securities industry did not vary based on any of the other variables tested, including the following:

• Whether a respondent owned stocks individually and/or in mutual funds • Number of individual stock transactions conducted within the past year • Household income

F. NEED FOR CHANGES IN REGULATIONS Of all respondents, close to eight in ten (78%) feel that the regulation of the securities industry should be stronger than it is today. One in three (33%) feel that it should be much stronger, while 45 percent feel that it should be somewhat stronger. Only one percent feel that it should be looser. Approximately one in five (21%) report that they don’t know whether regulation of the industry should be stronger or looser than it is today.

Should Regulation of the Securities Industry be . . .? (n=1,917)

Much stronger 33%

Somewhat stronger 45%

Somewhat looser 1%

Much looser 0%

Don’t know 21%

REFUSED 1%

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Differences Based on Stock Ownership and Investment Behaviors Likelihood to feel that the regulation of the securities industry should be much stronger than it is today did not vary based on any of the stock ownership and investment behavior variables examined, including:

• Whether a respondent owned stocks individually or in mutual funds • Number of mutual fund transactions conducted within the past year • Number of individual stock transactions conducted within the past year • Whether a respondent owned stocks outside of retirement accounts

Differences Based on Demographics Compared to other investors, those who are ages 65 or older, live outside of the Midwest, are divorced, are retired, or are neither white nor Hispanic were more likely to indicate that the regulation of the securities industry should be much stronger. Specifically, the following individuals were more likely than their counterparts to feel that the regulation should be much stronger:

• Investors ages 65 or older (36%), as compared to those between the ages of 60 and 64 (31%)

• Investors who are divorced (42%), as compared to those who are married (30%) • Investors who are retired (36%), as compared to those who are employed (31%) • Non-white investors, including African Americans and the small number of Hispanic and

Asian American respondents (43%); as compared to white, non-Hispanic investors (31%) • Investors in the Northeast, South, and West census regions (35%); as compared to

investors in the Midwest (27%) Likelihood to feel that the regulation of the securities industry should be much stronger than it is today did not vary based on the following demographic variables:

• Gender • Education • Household income

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APPENDIX A: METHODOLOGY Knowledge Networks, a research firm based in California, administered the survey using its web-enabled panel of people who have agreed to participate in surveys. This panel is designed to be representative of the U.S. population and was built by providing Internet devices and Internet service connections to people who have agreed to serve on the online panel. By providing Internet access to willing participants, Knowledge Networks allows individuals who would otherwise have no access to the Internet to participate in online research. Target Audience Selection Based on its existing information about its panel members, Knowledge Networks sent email invitations only to panel members who are aged 50 or older and own individual stocks, mutual funds, IRAs, 401(k), or 403(b) accounts. Questions were then added to the survey in order to verify that respondents owned stock in at least one of these accounts. Weighting The survey results are weighted based on gender, age, education, race/ethnicity, and geographic benchmarks to ensure that the results are representative of panel members ages 50 and older who own stocks either through mutual funds or as individual stocks. This weighting corrects for non-response. Additionally, the weighting was adjusted to ensure that the percentage of respondents who own stocks in only retirement accounts matches the percentage for respondents found in the 2002-03 MacroMonitor survey. The MacroMonitor survey is a nationwide mail survey, which is conducted every two years by SRI Consulting Business Intelligence to collect detailed information about financial asset holdings and financial behavior from 2500 respondents. In order to ensure a statistically valid and projectable sample, respondents for the MacroMonitor survey are recruited through random-digit dialing. Background Regarding Knowledge Network’s Web-Enabled Panel Initially, in order to invite households to participate in its web-enabled panel, Knowledge Networks contacted households through a random digit dialed telephone survey. Then, Knowledge Networks provided an Internet appliance and an Internet service connection to households who agreed to join the panel. Individuals who already had their own computers and Internet access prior to joining the panel are allowed to participate in surveys through their own equipment if they desire. Panelists are sent emails three to four times per month inviting them to participate in research studies.

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APPENDIX B: ANNOTATED QUESTIONNAIRE

Conducted by Knowledge Networks for AARP February 13 – 20, 2004. 1,917 qualified cases (financial decision maker and stock owner) Note that some percentages do not total to 100% due to rounding. Each question was asked of all 1,917 respondents unless otherwise noted. Results are weighted. See report for explanation of weighting. GROUP. Investor group. n=1,917

Stocks only in retirement investments 21% Others (both or non-retirement only) 79%

[SINGLE CHOICE] Q1. Who has primary responsibility for making decisions regarding your household’s financial

investments?

Myself 48%Myself and someone else 52%

[IF Q1 = 3 OR SKIPPED] [DISPLAY SCREEN] [NOTQUAL] We appreciate your response but unfortunately you didn’t qualify for the rest of the questions on this topic. [TERMINATE INTERVIEW] [SINGLE CHOICE] Q2. How closely, if at all, have you been following reports of plans to change current rules

related to how stocks are traded on some stock exchanges?

Very closely 3%Somewhat closely 20%Not too closely 43%Not at all 34%

[OPEN END] Q3. What, if anything, have you heard about the plans to change rules related to how stocks are

traded?

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[DISPLAY SCREEN] Q4INTRO. Please read the following information and answer the questions on the following screen. As you may know, the New York Stock Exchange is the largest U.S.-based stock exchange. A current rule that governs how stock is traded on the New York Stock Exchange allows anyone who buys or sells stocks listed on the New York Stock Exchange to wait up to 30 seconds before completing the transaction. The purpose of this 30-second rule is to increase the chance that the buyer or seller will get the best possible listed price. This rule affects anyone who buys and sells stocks listed on the New York Stock Exchange, including stock brokers, mutual fund managers, and individual investors. Some people like this 30-second rule. Some people don’t like this rule. These two views are explained as View A and View B on the following screen. [SINGLE CHOICE] [ROTATE ORDER OF VIEW A / VIEW B] Q4. View A: When buying or selling stocks, some people feel that the top priority should be to get the best available price. These people feel that the 30-second rule is a good rule. They don’t mind if their stock broker, mutual fund manager, or they themselves wait up to 30 seconds before buying or selling stocks. They like the 30-second rule because it means that they might save a few cents per share on the price of stock that they buy. View B: When buying or selling stocks, some people feel that it’s important to balance the need for the best available price with other needs such as the speed of the transaction. These people feel that the 30-second wait time should be reduced or eliminated entirely. They don’t mind if the price of the stock they buy is a few cents per share higher than the best available price. They don’t like the 30-second rule because it slows down their transaction time. Which of the above views do you agree with more?

View A 44%View B 21%Don’t know 35%

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[IF Q4=3 OR SKIP] [KEEP SAME ROTATED ORDER AS Q4] [SINGLE CHOICE] Q4A. View A: When buying or selling stocks, some people feel that the top priority should be to get the best available price. These people feel that the 30-second rule is a good rule. They don’t mind if their stock broker, mutual fund manager, or they themselves wait up to 30 seconds before buying or selling stocks. They like the 30-second rule because it means that they might save a few cents per share on the price of stock that they buy. View B: When buying or selling stocks, some people feel that it’s important to balance the need for the best available price with other needs such as the speed of the transaction. These people feel that the 30-second wait time should be reduced or eliminated entirely. They don’t mind if the price of the stock they buy is a few cents per share higher than the best available price. They don’t like the 30-second rule because it slows down their transaction time. If you had to pick one, which view do you agree with more?

n=663 View A 63%View B 30%REFUSED 7%

VIEW. (Composite Q4 and Q4A) n=1,917

View A 66%View B 31%REFUSED 3%

[IF SELECTED ONE OF THE VIEWS IN Q4 OR Q4A] [SINGLE CHOICE] Q5. How strongly do you agree with that view? n=1,869

Strongly agree 26%Somewhat agree 74%

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[IF OWN MUTUAL FUNDS] [GRID – SINGLE CHOICE] [RANDOMIZE RESPONSE LIST] Q6. When you invest money in a mutual fund or take money out of a mutual fund, how important

is each of the following to you? n=1,342 Very

Important Somewhat important

Not too important

Not at all important

REFUSED

Price per share 74% 20% 4% 2% 1%Fees charged for the transaction

75% 21% 3% 1% 1%

Speed of the transaction

19% 43% 27% 10% 1%

Confidentiality 62% 23% 11% 3% 1% [IF OWN INDIVIDUAL STOCKS] [GRID – SINGLE CHOICE] [RANDOMIZE RESPONSE LIST] Q7. When you or your broker buys or sells individual stocks (outside of a mutual fund), how

important is each of the following to you? n=1,387 Very

Important Somewhat important

Not too important

Not at all important

REFUSED

Price per share 80% 14% 1% 2% 2%Fees charged for the transaction

71% 23% 3% 2% 2%

Speed of the transaction

29% 40% 21% 8% 3%

Confidentiality 61% 23% 10% 5% 3% [IF IN FAVOR OF 30-SECOND WAIT TIME / VIEW A] [MULTI CHOICE, UNDER NO CIRCUMSTANCES = SINGLE CHOICE] [RANDOMIZE RESPONSE LIST, KEEP OTHER AND UNDER NO CIRCUMSTANCES AT THE END] Q8. Under which, if any, circumstances would getting the best available stock price not be your

highest priority? n=1,274 If getting the best available price meant I would have to pay high fees

48%

If I needed to buy or sell shares quickly 41% If I wanted to complete the transaction on the Internet rather than go through a stockbroker

11%

Other (specify) 2% Under no circumstances 17%

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[SINGLE CHOICE] Q9. Please indicate the extent to which you agree or disagree with the following statement: If my stock broker or mutual fund firm buys or sells stock without seeking the best available

price, they should notify me before they complete the transaction.

Strongly agree 57%Somewhat agree 29%Somewhat disagree 10%Strongly disagree 3%REFUSED 2%

[IF OWN INDIVIDUAL STOCKS] [MULTI CHOICE] Q10. Think about the individual stocks that you own, outside of any mutual fund investments.

How did you purchase those individual stocks? n=1,387

Through employee stock options 36%Through a stock broker or an online trading service

53%

Directly from the publicly traded company

14%

Other (specify) 15%

[IF Q10=2] [MULTI CHOICE] Q10A. Please specify which of the following ways you have purchased stock through a stock

broker or online trading service. n=752

Over the Internet 20%Over the phone 75%Through the mail 10 %Automatic deductions from bank accounts

8%

Other, specify 17%

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[IF Q10=3] [MULTI CHOICE] Q10B. Please specify which of the following ways you have purchased stock directly from a

publicly traded company. n=186

Over the Internet 4%Over the phone 36%Through the mail 61%Automatic deductions from bank accounts

13%

Other, specify 13% [IF OWN INDIVIDUAL STOCKS] [SINGLE CHOICE] Q11. How well do you understand the costs of buying or selling shares of individual stocks? n=1,387

Completely understand 15%Somewhat understand 46%Don’t understand very well 27%Don’t understand at all 12%

[IF OWN MUTUAL FUNDS] [SINGLE CHOICE] Q12. How well do you understand the costs of buying or selling shares of mutual funds? n=1,342

Completely understand 11%Somewhat understand 45%Don’t understand very well 31%Don’t understand at all 12%REFUSED 1%

[SINGLE CHOICE] Q13. In general, do you have a favorable or an unfavorable opinion of the securities industry as

a whole? Favorable 39%Unfavorable 25%Don’t know 35%

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[IF Q13=1] [SINGLE CHOICE] Q13A. How favorable is your opinion of the securities industry? n=772

Very favorable 25%Somewhat favorable 75%

[IF Q13=2] [SINGLE CHOICE] Q13B. How unfavorable is your opinion of the securities industry? n=484

Somewhat unfavorable 64%Very unfavorable 36%

[GRID - SINGLE CHOICE] [RANDOMIZE RESPONSE LIST] 14. How much do you agree or disagree with each of the following statements? Strongly

agree Somewhat agree

Somewhat disagree

Strongly disagree

REFUSED

I am confident that the financial institutions that handle my money manage my accounts according to what is in my best interests.

24% 52% 17% 6% 2%

I am confident in my ability to buy and sell individual stocks without the assistance of stock brokers.

9% 24% 39% 27% 2%

I have more confidence in the abilities of stock brokers than I have in my ability to buy and sell individual stocks on my own.

30% 42% 17% 8% 2%

I have more confidence in the abilities of mutual fund managers than I have in my ability to buy and sell individual stocks on my own.

32% 44% 15% 7% 2%

I prefer to make investment decisions on my own without the assistance of others.

9% 28% 39% 22% 2%

I prefer to have others manage my investments for me, but I like to be involved in major investment decisions.

35% 39% 15% 9% 2%

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[SINGLE CHOICE] Q15. As you may know, Wall Street is a term used to describe the nation’s largest banks,

investment banks, stockbrokers, investment firms, and other financial institutions. Overall, would you say that Wall Street benefits the country a lot, benefits it somewhat, harms it somewhat, or harms the country a lot?

Benefits a lot 31%Benefits somewhat 42%Harms somewhat 7%Harms a lot 2%Don’t know 17%REFUSED 1%

[SINGLE CHOICE] Q16. Some of the investment companies on Wall Street manage mutual funds. Overall, would

you say that mutual fund companies benefit the country a lot, benefit it somewhat, harm it somewhat, or harm the country a lot?

Benefits a lot 24%Benefits somewhat 46%Harms somewhat 7%Harms a lot 1%Don’t know 21%REFUSED 1%

[SINGLE CHOICE] Q17. How much have you read, seen or heard about misconduct by people in the mutual fund

business?

A great deal 17%A fair amount 51%Very little 26%Nothing 8%REFUSED 1%

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[IF OWN MUTUAL FUNDS] [SINGLE CHOICE] Q18. How concerned are you that investigations into accusations of misconduct by people in

the mutual funds business will affect the value of your mutual fund investments? n=1,342

Very concerned 25%Somewhat concerned 46%Not too concerned 25%Not at all concerned 4%

[MULTI CHOICE] [RANDOMIZE RESPONSE LIST, KEEP LAST TWO AT BOTTOM [NO CONCERNS = SINGLE CHOICE] Q19. What are your main concerns or worries about investing in the stock market today?

Fear of losing money 63% Lack of ethics in the marketplace 61% The state of the economy 55% Significant stock market declines 46% Accuracy of published financial statements 38% Lack of confidence in the stock market generally

31%

Fear that future terrorist attacks may cause a significant stock market decline

29%

No concerns 4% Other (specify) 3%

[SINGLE CHOICE] Q20. How would you like to see the regulation of the securities industry change? Should the

regulation be…

Much stronger 33%Somewhat stronger 45%Somewhat looser 1%Much looser 0%Don’t know 21%REFUSED 1%

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[GRID - SINGLE CHOICE] [RANDOMIZE RESPONSE LIST] Q21. Please tell me if you think each of the following issues are a big problem, a small problem,

or not a problem for the securities industry. Big problem Small problem Not a problem Don’t know REFUSED Dishonesty 62% 28% 2% 7% 1%Market volatility 31% 43% 13% 12% 1%Lack of accountability

62% 25% 3% 9% 1%

Lack of confidence from the public

44% 39% 6% 10% 2%

Lack of internal controls and checks

52% 28% 4% 14% 1%

Incompetent fund managers

44% 39% 5% 11% 1%

Incompetent brokers

42% 41% 4% 12% 1%

The poor economy 47% 33% 11% 7% 1%Insider trading 57% 30% 2% 10% 1%Conflict of interest between fund managers and fund shareholders

42% 34% 6% 17% 1%

Conflict of interest between brokers and shareholders

40% 37% 7% 7% 14%

Conflict of interest between fund board of directors and fund managers

40% 32% 5% 22% 1%

Lack of consumer protection and means of recourse for harmed investors

60% 27% 3% 10% 1%

Insufficient disclosure of risks to investors

46% 33% 9% 10% 2%

Transaction fees that are too high

42% 40% 7% 11% 2%

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[MULTI CHOICE] Q22. Which, if any, of the following do you rely on when investing in mutual funds or buying

stocks?

Personal broker/financial adviser 49%Spouse 28%Financial periodicals 23%Employer-sponsored broker/financial adviser

21%

Research analysts’ recommendations

17%

Financial shows on TV 16%Other family member 15%Friend 11%Internet 11%Accountant or CPA 11%Banker 7%Colleague 6%Other (specify) 5%Insurance agent 3%Lawyer 2%

[IF Q22=7] [MULTI CHOICE] Q22A. You indicated that you rely on the Internet when investing in mutual funds or buying

stocks. Please select all of the types of Internet sites you rely on.

Company homepages (i.e. pepsi.com) 49% News and information sites (i.e. CNN Money) 83% Stock or fund trading sites (i.e. Ameritrade.com)

59%

Other (specify) 13%

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[IF OWN MUTUAL FUNDS] [SINGLE CHOICE] Q23. Excluding automatic distributions or automatic investments, how many mutual fund

transactions have you directed a broker or mutual fund company to conduct for you within the past 12 months? (Please do not count transactions of individual stock. If you are not sure, please select the option that is closest to your best guess.)

n=1,342

No transactions 45%1 – 2 transactions 25%3 – 4 12%5 - 6 5%7 – 8 1%9 – 10 1%11 – 20 2%21 – 30 1%More than 30 0%Don’t know 7%REFUSED 1%

[IF OWN INDIVIDUAL STOCKS] [SINGLE CHOICE] Q24. Excluding automatic distributions or automatic investments, how many transactions of

individual stock have you directed a broker to conduct for you within the past 12 months? (Please do not count mutual fund transactions. If you are not sure, please select the option that is closest to your best guess.)

n=1,387

No transactions 51%1 – 2 transactions 20%3 – 4 9%5 - 6 4%7 – 8 2%9 – 10 2%11 – 20 3%21 – 30 1%More than 30 2%Don’t know 6%

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[NUMBER BOXES, RANGE 0-100] Q25. Thinking about your total financial assets, excluding real estate, what percentage of your

total financial assets falls into each of the following categories? If you are not, sure please provide your best estimate.

Median Mean CDs, Savings Accounts, Checking Accounts, Money Market Accounts or Money Market Funds

30% 38%

Stocks held in Mutual Funds 25% 34% Individual Stocks, not in mutual funds 20% 28% Bonds held in Mutual Funds 10% 14% Individual Bonds, not in mutual funds 5% 11% Other 20% 29%

[NUMBER BOXES, RANGE 0-100] Q26. Thinking about your retirement savings only, excluding real estate, what percentage of

your retirement savings falls into each of the following categories? If you are not sure, please provide your best estimate.

Median Mean CDs, Savings Accounts, Checking Accounts, Money Market Accounts or Money Market Funds

30% 41%

Stocks held in Mutual Funds 40% 42% Individual Stocks, not in mutual funds 20% 30% Bonds held in Mutual Funds 10% 18% Individual Bonds, not in mutual funds 7% 12% Other 23% 36%

[IF OWN MUTUAL FUNDS] [SINGLE CHOICE] Q27. Does the mutual fund or funds you own contain any stocks or only things like bonds and money market investments? n=8663

Has stocks 74%Does not contain stocks 7%Don’t know 19%REFUSED 1%

3 Question 27 was asked to eliminate respondents who did not own stocks, either as individual stocks or through mutual funds. The question was only asked of those respondents who owned shares in non-retirement mutual funds. Respondents who had retirement accounts, such as 401(k)s or IRAs, and who did not own stocks outside of retirement accounts were screened through a separate question to ensure that their retirement accounts included individual stocks or stock mutual funds.

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[SINGLE CHOICE] Q28. Are you, or your spouse or partner, a member of AARP?

Yes 58%No 42%

DEMOGRAPHICS OF RESPONDENTS

Gender Male 52% Female 48%

Age 50-54 22% 55-59 20% 60-64 15% 65-69 12% 70-74 11% 75-79 10% 80+ 9%

Race/Ethnicity White, Non-Hispanic 86% Black, Non-Hispanic 6% Other, Non-Hispanic 4% Hispanic 4%

Education Less than high school 7% High school 30% Some college 26% Bachelor’s degree or higher 36%

Region Northeast 21% Midwest 23% South 35% West 21%

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Household Income Less than $25,000 18% $25,000 - $49,999 38% $50,000 - $74,999 21% $75,000+ 23%

Employment Status Employed, either full-time or part-time

44%

Retired 44% Other 11%

Marital Status Married 66% Divorced 14% Widowed 13% Single, never married 6% Separated 1%

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