A recent article in ADVISORONE noted the ongoing flow of hundreds of billions of dollars into direct deposit accounts in banks, savings & loans, and credit unions. See http://www.advisorone.com/2012/01/13/investors-flee-stocks-and-bonds-stuff-cash-in-matt?utm_source=weekendreview11412&utm_medium=enewsletter&utm_campaign=weekendreview
Why is so much cash flowing into bank accounts, and not into the stock and bond markets, here in the United States? It all comes down to a LACK OF TRUST.
No longer do major investment bankers adhere to only dealing with quality products. The financial world, already much more complex than just a few years ago with its plethora of new investment products and different tax rules, is more “dangerous” than ever. And more costly – as product manufacturers and their distributors find more and more ways to divert from investors the returns of the capital markets.
WITHOUT TRUST - investors won't deploy cash into the capital markets. We could end up being like Greece ... Lots of money in bank accounts, very little money available for use as capital.
Our policymakers must realize that restoring trust in all aspects of our financial system will require mandatory principles of conduct.
One major part of the solution to this complex and (for individual investors) dangerous financial world is to enable consumers to TRUST their financial advisor. And that can only be done if a bona fide fiduciary standard of conduct is imposed upon all providers of financial advice.
The product sales business model can still exist – but product sellers must be prohibited (as regulators have done in some other countries) from furnishing ADVICE. Once advice is provided, the consumer RIGHTFULLY HAS THE EXPECTATION that he or she can TRUST his or her financial advisor.
The future of capital formation in the United States is at stake. And with it, future economic growth. And the financial security of hundreds of millions of individual Americans who both want and need a trusted financial advisor.
The many issues relating to the regulation of investment and financial advice, among different business models and across different regulatory regimes (and different regulatory agencies) are complex. But the ANSWER to questions posed is quite simple and direct ... impose a true fiduciary standard upon all providers of investment and financial advice. Educate advisors and consumers on such standard. And stand back and watch such a principles-based regulatory scheme work its magic to restore investor confidence in our financial markets system, thereby providing the fuel for capital formation and the resulting new era of U.S. economic growth.
My 2 cents ... I hope our policymakers share the same views.