Today's blog is more of a rant. I don't have any immediate solutions for this huge problem but as an industry, financial services really needs to start working on regaining faith and trust.
For research I read a lot of articles on personal finance. One of the things that has struck me recently is how fearful people are, and how the trust for those in the financial planning/institutions has really been decimated. Any blog post about investing will be commented on numerous times by every-day investors frozen by fear. They not only no longer believe the so-call experts, they don't know who to believe and trust.
What to do?! People want to get ahead, to earn more on their hard-earned savings than a bank account can provide...but the fear of losing it all to dodgy advisers/companies is freezing people into inaction.
The past 2 years have really seen the financial services industry fall into a very sorry state of affairs. Maddoff in the US, Storm Financial in Australia, banks falling over in the UK, the share market dropping by insane double digits, financial firms bankrupting left right and centre.
Who is to blame? Greedy financiers out to squeeze every last penny from consumers? Greedy banks for not stress-testing their policies? Regulators for not protecting consumers from shonky operators? Consumers for either being too greedy for high returns or too ignorant of risks? How can we prevent this from happening again?
Prevent is always better than cure and while I think there's no immediate cure to this ill, we should use education to make sure consumers become more financially savvy to prevent being fooled a second time.
Educating kids in school about spending, savings, debt and investment is a great start. Educating adults about what is a realistic return for a level of risk can help check the greed-led decisions. Empowering consumers with financial literacy knowledge will give them the courage to ask questions of those they put their trust in (and dollars with).
I'm loving the work of the Australian Financial Literacy Foundation and their website Understanding Money. The sooner this sort of information becomes a compulsory subject in schools the better.
Financial Planners and Institutions need to step up to the plate - stop biting the hand that feeds you! The focus needs to be less on immediate revenue from ripping off a few consumers, and more on providing transparent advice in a simple to understand language to build long-term relationships with customers. Financial Planning needs to be seen as a professional equal to that of Accounting and Law - by charging fees in the same way (rather than commissions) and demanding tertiary qualifications of its practitioners. Institutions need to be better regulated and more clearly disclose their fees - get rid of the mountains of gobbly-gook in Disclosure Statements!
Sigh. Rant over.