Nobel Prize-winning economist Robert Shiller seems to be a friend of financial advisers, at least the good ones.
Mr. Shiller on Wednesday said a lack of good financial advice was one of the problems that led to the financial crisis.
Speaking at a virtual conference hosted by the National Association of Personal Financial Advisors and Forbes, he pointed to the large number of Americans who went into unsupportable debt to buy homes. A good financial adviser wouldn't have let them make those dangerous moves, he said.
“People make better decisions with financial advisers,” Mr. Shiller said.
Mr. Shiller, who won the prize in economic sciences in October for his work suggesting markets are largely driven by human psychology, also said financial advice should be readily available to the masses, not just the wealthy.
It's particularly critical for low- and moderate-income families to get professional advice, he said, likening the need for financial advice with the need for health care.
“Financial advice is much more on par with medical advice,” Mr. Shiller said. “People who have needs will spend a lot of money on both.”
He even went so far as to suggest that professional financial advice is a service that should be made available to those without the resources to pay for it, through a Medicaid-type approach.
Mr. Shiller said the government should compensate advisers who help lower-income people with financial problems. He also criticized the current system that offers a tax deduction for some investment costs as “subsidizing the wealthy,” because low-income Americans don't itemize deductions on their annual taxes.
“Instead, make it a refundable credit so that it can come back to everyone,” Mr. Shiller said.
During the hour-long interview, the economist also reprimanded advisers who aren't willing to tell clients that they are making financial mistakes for fear they could lose the client. Mr. Shiller, who predicted both the dot.com and the housing bubbles, acknowledged that “investor overconfidence” can put advisers in a tough spot.
“People don't like to be told they are wrong,” he said.
Mr. Shiller even suggested that “if financial advisers had infinite time,” they should pursue a second degree in psychology so they could better manage behavioral tendencies that lead some clients to make poor financial and investing decisions.