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Government Initiatives Will Help Us Help Investors

by Eric Daugherty

Financial firms have had a rough year, but the future is brighter. One reason is that the government, despite recent harsh comments about the industry, is showing signs of being an ally in the fight to help citizens become better investors.

As I discussed in a July blog piece, "Bundled Pricing Obscures Value Propositions for Investors", financial firms provide three primary services to investors:

• Access to capital markets to invest their money
• A place to take a shot at beating the market (pursue alpha)
• Advice

While I believe the second of these ultimately detracts from investor returns, the first and third of these services are good and needed. Therefore, our government should do everything in its power to incentivize citizens to invest and get financial advice from trained professionals. As a Certified Financial Planner professional, I believe that financial planning for 90% of the populace is very simple:

• Save and invest more
• Diversify using low cost investment choices
• Rebalance periodically
• Repeat

Asset managers and the government should use all the tools at their disposal to encourage citizens to follow this simple road map.

Government's most powerful weapons are regulation and financial / tax policy. Two recent news items lead me to believe that both of these weapons could and will be wielded to encourage ordinary investors to do those things that are beneficial to them.

First, President Obama's retirement proposals suggest that government can and will support the creation of vehicles and incentives to increase savings. Secondly, as outlined in this Business Week article on a possible soda tax, America continues to creep ever closer to deeming certain things as "good" (healthy behavior) and others as "bad" (e.g. unhealthy foods, carbon emissions) and to find ways to subsidize the former and penalize the latter. Can further moves to spur Americans to save and invest more (to be physically and fiscally healthy) be far behind?

Both of these indicators bode well for American investors and, therefore, for financial service firms. If government continues to push citizens to save and invest wisely, and do what is good for them, those of us who provide needed, high-quality products and advice will benefit. If asset managers are smart, they will support and ride this wave by lobbying, educating their shareholders on pending proposals and legislation, and proposing additional ways that government can help investors help themselves.