Votermedia Finance Blog

January 23, 2010

Voter Funded Investor Education Proposal

Filed under: Uncategorized — Tags: — Mark Latham @ 10:36 pm

Since I represent individual investors on the SEC Investor Advisory Committee (SECIAC), I will give updates in this blog about what I am doing to fulfill that mission. The proposal below is one such project. I drafted it for consideration by the Investor Education subcommittee, hoping to see it forwarded to the full SECIAC and from there submitted to the SEC. Unfortunately that didn’t happen, as I explain below after the proposal text:

Voter Funded Investor Education Proposal – draft 20091130

TO: Securities and Exchange Commission
FROM: SEC Investor Advisory Committee
RE: Letting individual investors vote to allocate some education program funding

We recommend that the Commission have its Office of Investor Education and Advocacy (OIEA) explore the potential for letting individual investors vote to allocate some funding for investor education programs. If the OIEA determines that such an approach could play an effective role in advancing investor education, it could then implement a pilot program of limited scale.

Possible sources of funding, both for administration and for voted allocations, could include any of the existing pools of funds already aimed at investor education, or similar future pools: e.g. the SEC budget for OIEA, the FINRA Foundation, and/or the (proposed) Consumer Financial Protection Agency. Since all these groups may be interested to see how a voter allocation system would work, they may want to fund and administer this program jointly. Participation from the NYSE Individual Investors Advisory Committee could also be valuable.

Explanation and reasons:

Our concept for voter funded investor education is oriented toward worldwide web based education programs aimed at a broad (national or global) audience. All individual investors could vote on a web based ballot to determine the shares of funding for perhaps 15 or 20 competing education programs. The voting and funding can be conducted continuously through time, thus giving the competitors a continuous incentive to serve investors’ education needs.

The ballot web page would link to each participating education program’s website. This could be a component of a new portal at OIEA’s website, where investors could find links to a wide range of education programs.

Potential benefits include:

– Empowering individual investors by involving them in the choice of which education programs are valuable to them.

– Giving systematic quantitative feedback on which programs are most appreciated by users.

– Motivating grantees to market their offerings to reach a broader audience.

– Reaching and engaging a younger demographic via the medium they like to use.

– Opening up education project selection systems to a wider range of potentially worthwhile programs that might currently be neglected. Projects would compete dynamically, tending to fill in any gaps in existing education programs. For example, a new initiative might aim to teach investors about voting their proxies.

– A continuous voting system can reward grantees based on value delivered to users. This avoids the problem of awarding a grant based on a promising proposal which is then not well executed.

– Crowd-sourcing some allocations could enable funding of more lower-cost initiatives that grantmakers would otherwise lack the staff resources to evaluate and monitor.

– Fund allocation by individual investors would reduce any possible concerns that allocation processes may be biased in some way.

This concept is based on an online funding allocation system originally designed by committee member Mark Latham to educate investors on how to vote their stock. He then adapted it for voter education in democracies, and implemented it in elections for Vancouver (Canada) city council and the University of British Columbia student union.

To help limit administration costs, the software systems are open source (available at no cost) and Mark Latham has volunteered to advise on the project. A beta-test ballot is on the web at

This new adaptation for individual investor education should be explored step by step. The flow of funding can be adjusted continuously through time, so it can be started small and then expanded as justified by its results.

As reported in the summary of our subcommittee’s December 18 2009 phone meeting:

1. Voter-Funded Investor Education Proposal

Mark briefly discussed his proposal, which had been circulated previously to the subcommittee. Dallas stated that he was aware the SEC’s Office of Investor Education and Advocacy (OIEA) had reviewed internally the draft proposal, and that they had identified a number of legal and policies issues that militated against recommending OIEA host the program. Mark, as well as a consensus of subcommittee members, indicated that the proposal might not be a good fit for the Advisory Committee, but that it might be appropriate for another entity, such as FINRA (with whom Mark has had discussions) or a potential agency created as part of recent and pending legislation. Dallas offered names of contacts at the Department of Treasury and in Congress that might be interested in the proposal. Mark requested that any subcommittee member who had thoughts or input on the concept feel free to contact him.

My understanding of the OIEA review is that the SEC is not empowered to distribute funds to other organizations, so it’s not a good fit to recommend that they consider implementing this proposal. So even though this proposal is the most effective way I can think of for using public funds for investor education and empowerment, I backed off of advocating it for the SEC. Instead I am exploring implementation possibilities with the FINRA Foundation. I wish I had the time and connections to recommend it also to those in Washington DC who are making plans for a Consumer Financial Protection Agency, but I’m not sure my reach will extend that far. I think my limited resources can have greater public benefit by deploying them where I have connections, such as in SECIAC, ProxyDemocracy and UBC.


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