Time for Financial Advisers to Get Political


    The looming shutdown of the federal government is clearly not good for investors.  Any shutdown is expected to cut fourth quarter GDP growth by as much as 1.4 percentage points as furloughed workers drop out of the economy, according to a survey by Bloomberg news.

    Time for advisers to get political and protect their clients' financial interests
    Time for advisers to get political and protect their clients’ financial interests

    Yet while the shutdown is bad for investors, it is only another impediment to wealth creation, which comes as investors are still rebuilding the lost wealth from the 2008 recession. In that still-evolving event, almost $19 trillion in household wealth was destroyed.  (Source: “Lessons From the Recession,” Lynn Brenner, AARP Bulletin, September 2013.)

    Given this historic looming shutdown amid other major market concerns, financial advisers should begin to inject political-economic realism into their advisory practices to address issues which are already on their clients’ minds.

    This is because whether clients can articulate it or not, most know they are poorer today than they were pre-2008, regardless of macro-economic statistics.

    Individuals can feel that their real wages have been stagnant since 1987.  Wage stagnation and how it is reflected in per capita disposable income has shrunk by 0.4% at an annualized rate over the past five years, according to the Wall Street Journal (Source: “Income Sinkhole Hurts Consumer Spending,” March 29, 2013, C1). This article states that the 0.4% rate is “the worst such reading since this data series began in 1964.” In comparison, the average rate has been an increase of 2.2% annualized.

    Worse, consumer spending is being fueled by a decrease in savings. The savings rate in January 2013 fell to 2.4% of after-tax income which was the lowest rate since 2011, the Journal article reported. This 2.4% compares to an average savings rate of 7% which has existed since the 1950s, according to the article.

    Since the Great Recession officially ended, two in five households are still living paycheck to paycheck. This grim statistic is part of a new survey conducted by Careerbuilder.com.  Most people also know of others who have stopped looking for work or are grossly underemployed. This is borne out in data which shows the labor participation rate today is at its lowest point in over 30 years.

    This data, combined with the historic ideologically-inspired gridlock in Washington cannot be ignored. It will only add volatility to an already unsettled market, and this will only fuel investor concerns about their long-term wealth building abilities. Advisers who fail to change their approach given these new realities are working in a parallel universe, one not connected to the realities affecting their clients.

    Get the Facts. Tell the Facts

    The repeated Republican attempts to repeal the Affordable Care Act have their own ideological motivations.  The fact is the law was passed by Congress and signed into law by the President on March 23, 2010 and re-affirmed on June 28, 2012 by the Supreme Court, which rendered a final decision to uphold the health care law.

    Yet these repeated attempts to repeal, amend and defund the law should not be considered isolated events.  Put into the context of the ongoing anti-financial reform tactics, such as the concerted attempts to derail the fiduciary standard, the Volker Rule and Dodd-Frank, signify that the health care law debate is just another effort to stymy reform and beat back all types of regulation.

    The stakes are high and the lobbying budgets are even higher. A study by the Financial Crisis Inquiry Commission found that in the decade before the 2008 market crash, the financial services industry spent $2.7 billion on lobbying and $1 billion on campaign contributions to beat back attempts to curb bank trading activities and derivatives regulation, according to a Bloomberg article.

    This is a staggering sum and one which easily dwarfs the combined budgets of all other pro-investor financial reform budgets combined. This is why the fiduciary reform debate has been stymied for about 30 years and why other pro-investor reforms going forward face a bleak future.  In short, while the anti-health care law is designed to disenfranchise millions of people, it is just an extension of the anti-investor activities being conducted by huge segments of the financial services industry.

    “The 400 richest people in the United States have more wealth than the bottom 150 million put together,” said Berkeley Professor and former Labor Secretary Robert Reich on a recent CNNMoney panel on inequality.

    To add insult to injury, most of that lobbying and political donation money came from individual investors.  This means, unsuspecting individuals invested in a mutual fund or took out a mortgage only to have their own money go through a Rube Goldberg-accounting scheme which converted it into fees and then into corporate revenues.  This money was then used against the interests of investors by highly-paid lobbying firms.

    In the context of offering financial advice, these events cannot be ignored.  Any professional financial adviser working with an adult client must ask, “When was the last time you got a raise?”  This can be done in conjunction with asking about savings and spending behavior, but to ignore the income stagnation side of the equation means the adviser is offering incomplete advice. This is even more critical for people providing 401(k) participant education. Simply put, if you don’t talk about raises when meeting with participants, your advice is tainted and misleading.

    Political economy is not a light discussion, but we do not live in light times. It is also a topic which traditionally has never been part of client discussions.  But current events demand a change in approach.

    The U.S. has the greatest income disparity of any developed nation in the world.  According to CNN Money, the median wage earner in America took home 9% less in 2012 that they did in 1999.  Nor is this income gap closing.  Chief executives of the nation’s largest companies earned an average of $12.3 million in total compensation in 2012 or 354 times more than a typical American worker, according to the AFL-CIO. 

    While these statistics cannot be articulated by most advisory clients, they feel it at home and in their daily lives.  Astute financial advisers who want to be honest with their clients have to inject political-economic situations, data and facts into their planning scenarios if they want to offer honest advice.  Avoiding these pressing realities can only make the adviser appear naïve or, at best, detached from what is really affecting the financial security of clients and their families.

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    Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry. He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial. He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site, www.mutualfundreform.com, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).


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