August 30, 2010
Requirement:
The government has a responsibility to protect the retail customer from predatory practices that might involve unclear incentives - incentives that might not reflect the best options for the retail customer.
Complaints:
The most recent problem we are still living through is the mortgage crisis. Uneducated people were told they could afford a certain amount for a mortgage. Realtors, brokers, and other related parties told uneducated people they could afford a property and if not, they could sell it and make a profit. When "professionals" in all corners say that something can be done, it seems to be true. How can you refute it, especially when so many other people are doing the same thing.
Uneducated people are easily swayed by "professionals" in an area where it is difficult to learn about the details of the process. Investing is a very, very complicated thing for many people. If advisors are not transparent in whether or not a certain choice benefits them more than another - people cannot make an unbiased, educated decision.
Furthermore, as the government has created so little confidence in me, and many others that Social Security will be able to take care of anyone appropriately, people want to be able to confidently support themselves fully, and consider social security "extra". I have zero faith social security will support me, or my family, or that it will even be adequately available should I want it, when I need it.
If any governing body fails to protect me or a retail customer in our effort to take care of ourselves in retirement, a great disservice has been committed. Bernanke himself said that we were saving too much. The "expert" of all finances, globally, told the American people they were saving too much. What advisor is supposed to be respected more than Bernanke and convince a retail customer that Bernanke was and is wrong. I'm now being taxed to "carry" people who did not save enough and borrowed more than they should have.
The government is ruining people's sense of self-responsibility by providing so many signals that "WE WILL TAKE CARE OF YOU". How about just making us able to take care of ourselves and protecting us in our effort to do so.
Solution:
Protect the retail customer by requiring all brokers, dealers, and investment advisers to provide a statement, on a singular piece of paper, the facts regarding each post and what they provide, and how their incentives might conflict with the retail customer's objectives including a concise example of a potential conflict and the potential long term impact. Require the brokers, dealers, and investment advisers to provide no advice nor take any payment until they have electronically filed (for easy auditing) a copy of the document from the "retail customer". The document must also be personally signed by the broker, dealer, and/or investment adviser, who is providing the advice to the "retail customer".