The Financial Industry Regulatory Authority Investor Education Foundation is funding research into improved investor disclosure.

The foundation has awarded a grant of US$432,850 to the National Bureau of Economic Research to explore whether disclosure policies can be shaped to help individual investors better evaluate investment risks and consider mutual fund fees when making an investment decision.

The project will research how to mitigate common errors made by individual investors – including investors who evaluate risk in isolation rather than in the context of their overall portfolio and time horizon, as well as their failure to consider mutual fund management fees. Over the course of one year, three experimental studies will be conducted to test different forms of disclosures and their impact on helping investors understand risk and the effect of fees on investment return.

“There are many factors to consider when making investment decisions,” says FINRA Foundation chairman Mary Schapiro, who also serves as FINRA’s CEO. “By funding this research, it is our hope that more investors will be able to take informed, active roles in managing their financial futures.”

The NBER project team includes Harvard University Professors David Laibson and Brigitte Madrian, and Yale School of Management Professor James Choi, among others.

It has also awarded a grant of US$324,125 to the University of Central Florida to analyze how well investors understand the disclosure information presented with financial products—and how to make that information more meaningful to both retail and institutional investors.

The project will examine the value and relevance of current types of disclosure to both retail and institutional investors, and will attempt to identify the kinds of disclosures each type of investor would find helpful and their preferences for how that disclosure information is presented. The study will focus on how to foster accuracy and encourage transparency in the various types of financial information made available.