Pop quiz: Do you know the difference between a stock and bond? Do you know how inflation works? How about a fiduciary conflict of interest? Do you know that, if you don’t know these things, your broker or adviser can and will screw you over?

The Securities and Exchange Commission today released a big two-year report, mandated by the Dodd-Frank reform package, on the “financial literacy” of “retail investors” —that is, regular folks who own stocks, mutual funds, 401(k)s, and other plain Jane securities. The takeaway : we’re idiots, and easy marks.

“U.S. retail investors lack basic financial literacy,” the report sighs. Individual investors, who own about a quarter of all equities, have “a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud.” The 4,800-person sample showed that women, African-Americans, Hispanics, the poorly educated, and the very elderly are the least informed, and most vulnerable.

The report comes as small-scale investors leave the capital markets in droves, spooked by the volatility, a shoddy IPO climate (think Facebook), and electronic trading robots that can trade and tank your assets a thousand times before you have time to click open your Schwab account. In the past year, over $129 billion has left stock funds. On Tuesday, two California brokers were convicted of conspiring to defraud regular investors—some of them Hurricane Katrina victims—out of $1 billion with a fake investment program. JPMorgan asset advisors have copped to giving misleading, pocket-lining advice.

To find a solution, the SEC spent two years pouring through surveys, focus group research, public comments, and Library of Congress studies. But in the report, bombshells are few and far between—and many forests are missed for trees. For example, the study shows that “investors prefer to receive investment disclosures before investing, rather than after.” Shocker. And in another of the report’s so-sad-it’s-funny moments, the SEC waxes poetic on graphic design. “Investors favor investment disclosures presented in a visual format, using bullets, charts and graphs.” The report continues with more helpful advice: “Provide both a narrative explanation of fees and compensation, and a fee table.”

Does the report recommend that ignorant retail investors stay away from fee-hounding brokers? Does it advise keeping capital in plain-old, high-performing indices, rather than trying to compete with professional stock-pickers? No answer. It does, at least, confront the question of how to get your fee disclosures delivered. Do people prefer “certain documents in hard-copy” or do they “favor online disclosure?” But alas, head-scratchingly, “investor preferences are mixed.”

There are few greater informational asymmetries in finance than the divide between a Wall Street adviser and his Main Street clients. If the wild and complex financial world is Wonderland, we're Alice, and they're the Cheshire Cat. Moreover, securities law is notoriously lax when it comes to self-dealing: small-scale investors are supposed to fend for themselves. That may be one of the reasons why the report seems to give regular folks the responsibility of figuring out if their advisor has a conflict of interest -- say, recommending stocks that they themselves own. And so the SEC reminds us of “the importance of checking the background of investment professionals” and recommends that contracts “disclose whether a financial intermediary stands to profit”—like JPMorgan above— “if a client invests in certain types of products.” If your broker has “a disciplinary history,” that’s also something you should ask about.

To be fair, educating the masses isn’t the SEC’s job—and its Dodd-Frank-mandated report does hold the mirror up to our financial illiteracy. In a statement, Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy, called the report a ‘must read’ for any individual or organization dedicated to educating investors.” But a jargon-filled rundown of the “timing, content, and format” of financial disclosures isn’t going to reassure regular investors, or help them fend off predatory experts. It’ll leave us where we were: running scared.