David,
Below please see the response I received from the Chairman�s Office and reviewed by our CorpFin division. Please let me know if you need anything else. I appreciate the consideration you have made for our expedited response.
Thank you!
Shirley
_____________________________________________
From: Murphy, Elizabeth
Sent: Friday, February 16, 2007 2:00 PM
To: Martinson, Shirley A.
Subject: response to David's email
1. �I need the following two statements in the supporting statement reconciled.�
In question 16: "The report will include both qualitative and quantitative analysis of the results of the research, including the Analysis of Variance technique to assess the difference between the different types of products; t-tests to assess differences between large and small firms and between broker-dealers and investment advisers; logistic probability models to examine the characteristics of the firms most likely to offer brokerage accounts, investment advisory accounts, or both; and ordinal logical regression models to evaluate the likelihood of each type of investor to opt for each type of account to determine the most influential characteristics that affect their decisions. "
But in Part B: "The study�s interviews of interested parties are intended to provide background and perspective for the other research tasks, and do not employ statistical methods."
Response: The statements are consistent. To explain, the interview process is intended to produce contextual information which will assist in interpreting data acquired by other means. Interview data will be used for a descriptive, qualitative analysis. RAND will not analyze that data using statistical methods to make inferences on the general population. Data compiled from public databases will be used for the quantitative analysis, which will employ statistical methods such as those described in the answer to question 16.
2. �In addition, I need more detail about the sampling methodology to be used in selecting interviewers [presumably intend �interviewees�] in the various tasks, the target numbers for contacts and how those numbers were determined, and the statistical methods that will be used to analyze interview data that lacks formalized responses. Recruitment methods and Incentives for focus groups also need to be specified and specifically approved.�
Response: In Task 1, interested party interviewees will be the most prominent self-regulatory organizations, industry groups, consumer groups, academics, and regulators in the industry. We anticipate approximately 20 interviews. The selection of these interviewees represents a target approach rather than a statistical sampling approach. That is, interviewees are specifically chosen for their interest in the SEC�s study. The SEC received over 1,700 comment letters during the rulemaking period for the 2005 rule, �Certain Broker-Dealers Deemed Not To Be Investment Advisers.� The 20 interviewees will be chosen in such a way as to yield a balanced sample based on their expressed viewpoints. We believe that the target number of 20 interviews is the minimum number of interviews that can represent the diverse interests and viewpoints regarding the financial service industry.
In Task 2, approximately 25 of the firm interviewees are the largest firms in the industry. The remaining 50 (approximately) are randomly chosen from all investment advisor and broker-dealer firms. Our sampling approach here will be a combination of intensity sampling and heterogeneity sampling. In terms of intensity sampling, we will contact the 25 firms with the largest market shares (or believed to have the largest market shares), which are most representative of the industry. However, since the investment industry is also very fragmented despite high concentration within the top tier, relying only on the largest players might result in a flawed picture. Therefore, we will also employ heterogeneity sampling, randomly sampling 50 investment adviser and broker-dealer firms which are not in the top 25 of their markets in terms of market share. Interview data will be used for a descriptive, qualitative analysis. We will not analyze the data using statistical methods to make inferences on the general population.
On �recruitment methods and incentives for focus groups�:
Response: Focus group participants will be recruited by a recruiting firm such as Metro Research (in the Washington, DC area) or Focus Group LA (in the Los Angeles area). The recruiting firm maintains a large database of households in the geographic area where the focus group will be conducted. The recruiting firm calls households and screens participants to meet our requirements. For each focus group, we will aim for the participants to be representative of the population of the geographical area in age, gender, and race. Participants will be required to have minimal investing experience. Individuals who work in the financial services industry will be excluded. Interested individuals who qualify for the focus group will receive a follow-up letter with instructions. Focus group participants will receive a $100 cash honorarium.
3. �Part B also discusses a financial literacy
questionnaire. Has that been submitted
separately?�
Response: RAND�s financial literacy questionnaire is as follows:
Financial literacy
questionnaire
Suppose you had $100 in a
savings account and the interest rate was 2% per year. After
5
years, how much do you think you would have in the account if you
left the money to
grow: more than $102, exactly $102, less than
$102?
1 More than $102
2 Exactly $102
3 Less than
$102
4 I don't know
Suppose you had $100 in a savings
account and the interest rate is 20% per year and
you never
withdraw money or interest payments. After 5 years, how much would
you
have on this account in total?
1 More than $200
2
Exactly $200
3 Less than $200
4 I don't
know
Imagine that the interest rate on your savings
account was 1% per year and inflation
was 2% per year. After 1
year, would you be able to buy more than, exactly the same
as, or
less than today with the money in this account?
1 More than
today
2 Exactly the same as today
3 Less than today
4 I
don't know
Assume a friend inherits $10,000 today and his
sibling inherits $10,000 but 3 years from
now. Who is richer
today because of the inheritance?
1 My friend
2 His
sibling
3 They are equally rich
4 I don't
know
Suppose that in the year 2010, your income has
doubled and prices of all goods have
doubled too. In 2010, will
you be able to buy more, the same or less than today with
your
income?
1 Buy more than today
2 Buy the same as today
3
Buy less than today
4 I don't know
Which of the
following statements describes the main function of the stock
market?
1 The stock market helps to predict stock
earnings
2 The stock market results in an increase in the price
of stocks
3 The stock market brings people who want to buy stocks
together with those who
want to sell stocks
4 None of the
above
5 I don't know
Which of the following statements
is correct?
1 Once one invests in a mutual fund, one cannot
withdraw the money in the first
year
2 Mutual funds can invest
in several assets, for example invest in both stocks
and
bonds
3 Mutual funds pay a guaranteed rate of return which
depends on their past
performance
4 None of the above
5 I
don't know
If the interest rates [rise/fall], what should
happen to bond
prices?
1 They should
rise
2 They should fall
3 They should stay the same
4 I
don't know
Do you think that the following statement is
true or false?
Buying a [single company stock/stock mutual fund]
usually provides a safer return than a
[stock mutual fund/single
company stock].
1 True
2 False
3 I don't
know
Do you think that the following statement is true or
false?
[Stocks/Bonds] are normally riskier than
[bonds/stocks].
1 True
2 False
3 I don't
know
Considering a long time period (for example 10 or 20
years), which asset described
below normally gives the highest
return: Savings accounts, Bonds or Stocks?
1 Savings
accounts
2 Bonds
3 Stocks
4 I don't
know
Normally, which asset described below displays the
highest fluctuations over time:
Savings accounts, Bonds or
Stocks?
1 Savings accounts
2 Bonds
3 Stocks
4 I
don't know
When an investor spreads his money among
different assets, does the risk of losing a lot
of money
increase, decrease or stay the same?
1 Increase
2
Decrease
3 Stay the same
4 I don't know
Is the
following statement true or false?
Housing prices in the US can
never go down
1 True
2 False
3 I don't
know
4. In the future, each of the questions for Part B should be answered separately and in detail. [Although this request was made only with respect to future requests, the responses to Part B are broken out separately below]
B. Collection of Information Employing Statistical Methods
1. Description of potential respondent universe and any sampling or other respondent selection method to be used.
There are approximately 6035 broker-dealer firms registered with the Commission and 10,650 investment adviser firms registered with the Commission. Task 2 of Appendix A estimates the number of firms from which the contractor will seek to collect business documents and with which it will seek to conduct interviews. Task 3 of Appendix A estimates the number of investor focus groups, consisting of from six to nine participants each, that the contractor plans to conduct preceded by completion of certain questionnaires. For purposes of gathering business documents, the contractor will employ intensity sampling to select a group of firms with the largest market shares and which are most representative of the industry, and heterogeneity sampling to randomly sample other investment adviser and broker-dealer firms. From these firms, the contractor will select a diverse subset of firms as candidates for interviews, including firms of varying sizes.
2. Describe the procedures to be used for the collection of information.
For purposes of focus group interviews, the contractor�s internal group of survey methodologists and specialists in the technical aspects of survey research will segment potential participants into sophisticated and non-sophisticated investors, using factors that include responses to a financial literacy questionnaire. The contractor has set targets for the number of firms to be contacted for documents and for the number of investment advisers, broker-dealers, and investors to be interviewed (including through investor questionnaires) to provide the data necessary to conduct the quantitative analysis discussed in answer to question 16 above.
3. Describe methods to maximize response rates and to deal with issues of non-response.
The contractor will attempt to maximize response rates and deal with issues of non-response through methods such as factoring a cushion for non-responses into the number of firms and investors it contacts; making multiple contacts with each firm, including headquarters and local branches, as necessary; contacting firms by letter describing the research, followed by a telephone call and additional follow-up calls as needed to schedule interviews; and choosing locations and facilities for focus group interviews that offer ample potential for recruiting each category of participants.
4. Describe any tests of procedures or methods to be undertaken.
Not applicable.
5. Name and telephone of individual consulted on statistical aspects of the design.
The contractor designed the statistical aspects of the study and will collect and analyze the information for the Commission. The contractor�s project leader is Dr. Angela Hung (703/413-1100).