Dubious FINRA Study Finds Female Arkansas Prison Inmates Are Usually Poor and Financially Illiterate

July 24, 2020

There is often only one step separating the sublime from the ridiculous, but FINRA seems to have built an entire staircase upon which to test that truth. And FINRA regularly treads those steps. Up and down. Down and up. All the while the self-regulatory-organization gets nowhere but fast. In yet the most recent installment of the heights and depths of FINRA's sublime ridiculousness, consider: New Research: FINRA Foundation Examines Financial Capability of Women Behind Bars / Study Highlights Grim Financial Challenges and Gender Disparities (FINRA Release)
As stated in part in the FINRA Release:

The study, Gender and Financial Capability from Behind Bars, used primary survey data collected from 515 women and men incarcerated in five correctional facilities in Arkansas, in concert with financial capability data from the FINRA Foundation's National Financial Capability Study.

Of note, the study found that incarcerated women in Arkansas have the highest poverty rates and use of predatory lenders, as well as the lowest levels of financial literacy and financial assets-in comparison to incarcerated men and the state's general population.

Bill Singer's Comment

Oh for godsakes, really?  Another dubious study promoted by the FINRA Investor Education Foundation. Now, please, don't get me wrong. I wholeheartedly endorse studies about gender, racial, and ethnic discrimination and harassment, and how such pernicious conduct manifests itself financially and economically. If you are familiar with my published body of work, you will find that I frequently champion victims of Wall Street discriminatory practices. That being said, just how much money did FINRA spend on this study and its promotion? What exactly was the unanticipated, surprising results of the study? Did FINRA and the authors expect that a survey of 515 Arkansas inmates would show that said population ranks among the top 1% of wealthy individuals? Did those investigating this group expect that the inmates were financially literate or would have impressive financial assets? Were the investigators anticipating that incarcerated women would have higher financial literacy and more financial assets than incarcerated men? 

Not to be too cynical or snarky here (but I'm going to be just that) but there are some postulates that don't require expensive studies to confirm. For example, I imagine that incarcerated men and women have, on average, fewer Frequent Flyer Miles than those who have never been incarcerated; and, similarly, that said inmate population has on a percentage basis fewer PhDs than in the non-inmate population. Frankly, if FINRA has money to throw around on such studies, I would have much preferred that the funds were earmarked for outright financial grants to the Arkansas female inmates rather than for studies about their dire financial straits. 

Imagine if Congress and the White House had opted to fund a nationwide study about whether a Paycheck Protection Program was needed rather than just funding and paying the PPP. Was there really any doubt that folks were hurting from the economic impact of COVID? Did we need to fund a study to learn that, overall, wage-earners who were unemployed because of business closures caused by COVID had lower bank balances and less income than those wage-earners who remained employed? At some point, isn't is simply wasteful to fund studies rather than set things in motion to address the perceived problem?

Ultimately, FINRA is an unprofitable, money-losing organization. As set forth on Page 2 of FINRA's "2020 Annual Budget Summary" 

[W]e are again projecting that our expenses will exceed our operating revenues in 2020, which could result in a potential draw-down of our reserves of $210.2 million (referred to as the Potential Reserve Reliance). As in prior years, this projection helps us understand at the beginning of the year, for budgeting purposes, how reliant we may have to be on our reserves during the course of the year. However, in practice, our actual net income or loss-to be reflected in our 2020 AFR-will ultimately include fines, investment returns and other accounting adjustments. For reference, our 2018 budget included a Potential Reserve Reliance of $138.1 million, but we ultimately reported a GAAP net loss in our 2018 AFR of $68.7 million. Our 2019 budget included a Potential Reserve Reliance of $185.8 million; our 2019 GAAP net loss, which will be lower than the Potential Reserve Reliance for 2019, will be reported as usual in the 2019 AFR this summer. 

Over the last several years, we have relied on our reserves to fund budget deficits instead of increasing member firm fees, with 2020 marking the seventh consecutive year we have not increased fees. As a result, FINRA has drawn down approximately $650 million from its reserves since 2010.

Enough is enough. For FINRA's beleaguered member firms of which some 91% are designated as "Small Firms" (between 1 and 150 registered representatives), FINRA continues to spiral out of financial control and seems oblivious to zero-commission/pandemic economic environment within which broker-dealers now exist. Frankly, nothing could be more stark an example of FINRA's errant direction than its funding of a survey about the financial plight of Arkansas inmates when the self-regulatory-organization had "drawn down approximately $650 million from its reserves since 2010." How does FINRA justify running such a budget deficit -- which is all the more perplexing given the Trump Stock Market euphoria from about 2017 through early 2020? Consider this hollow assurance that FINRA members are offered at Page 1 of the 2020 Budget Report:

It is important to note at the outset that the 2020 budget summarized below was developed and approved by FINRA's Board of Governors before the nature and extent of the COVID-19 outbreak became apparent. That event has significantly impacted the business and operations of many of our member firms, as well as how FINRA performs many of its functions. We expect to continue to adjust our operations as appropriate to best achieve our mission as this situation evolves. These adjustments and the pandemic's impact on our member firms may have implications for our financial performance relative to the projections in the 2020 budget. The Board will continue to monitor these developments and management's response.

No wonder the Small Firm community has been in revolt against the powers that be. This lunacy cannot persist. Thankfully, Small Firm Governor Stephen Kohn is running for re-election as one of FINRA's Small Firm Governors. Hopefully, Stephen will use his second term to press the Board for overdue reforms. 

As a 38-year Wall Street veteran and a founder of the NASD and FINRA Dissident Movement, I have tired of far too many candidates for FINRA elective office who talk the talk but won't walk the walk. Following his election as the 2017 FINRA Small Firm Governor, Stephen Kohn pressed for a number of meaningful reforms. Too often it was Stephen and only Stephen who fought for the small firms. Despite his lonely advocacy, Stephen persisted. If re-elected in 2020, Stephen will remain a passionate voice in raising the legitimate grievances of the small firm community. I urge all FINRA Small Firm Executive Representatives to cast a proxy in support of Stephen Kohn's candidacy for the 2020 FINRA Small Firm Governor.

Bridgewater Over Troubled FINRA Waters (BrokeAndBroker.com Blog)
I must ask -- indeed, all Wall Street reform advocates must wonder -- whether FINRA's Nominating Committee knew about an American Arbitration Association hearing panel's finding of fabrication of evidence by Bridgewater Associates that occurred during the newly-elected FINRA Board Chair Eileen Murray's term as CEO of Bridgewater. If the Nominating Committee knew of the allegations/findings about fabricated evidence, was that disclosed to all FINRA Board members before they voted to approve Murray's nomination? If the Nominating Committee did not know about the fabricated evidence issue, shouldn't Murray have disclosed such facts during the vetting process given that FINRA is Wall Street's leading self-regulatory-organization? 

(BrokeAndBroker.com Blog)
Prominent radio talk-show host Hugh Hewitt announced his support for the re-election of FINRA Small Firm Governor Stephen Kohn