Outside voices and views for advisers

Fair warning to advisers: Tomorrow's investors are not naive

Many know precious little about the investment world, it's true. But compared with previous generations, they also know too much.

Jun 16, 2014 @ 12:59 pm

By Mike West

advisers, investors, education, markets
+ Zoom

How important is it to you that your clients understand finance?

I would argue that if it's not already among your top priorities, it soon will be. In fact, client education may well be indistinguishable from business development for small advisory firms in the near future. I say this because I suspect that the next generation of potential investors is already lingering outside your door — but it's not at all certain whether they'll choose to cross the threshold.

Past generations of investors grew up in cultures where the middle class was still undiscovered country and financial literacy was a working part of that great life-reform program called the American Dream. What they may have lacked in market savvy, they made up for with faith in the practice of investing.

And as Janice Traflet's recent book "A Nation of Small Shareholders" shows, that faith was not so much the quaint bearing of a simpler time as it was the product of significant cultural conditioning — conditioning that today's upcoming investors never got.

Before the Great Crash of 1929, the American public received some strong messages about the value and utility of securities investing, first through World War I Liberty Bonds — a federal ad campaign earning some $17 billion for the Allied war effort — and then through the famous bull market of the mid-1920s. Twenty years after the crash, and on the brink of the Cold War, “common stock” equities investing got its own popular push, as the New York Stock Exchange left off its former qualms about advertising and embarked on the controversial “Own Your Own Share of American Business” campaign.

Retelling the story in 1984, one of the key architects of the Own Your Share program, Rud Lawrence, captured some of the power financial education held over his generation by equating the idea with the space race:

“Well, at the risk of dwelling too much on broadening the market, which by the way I think was one of the great ideas of our time — of course we have since gone to the moon — but in those days I thought that broadening the market perhaps would be one way by which our generation would be distinguished.”

One could argue that it wasn't until the global financial crisis and ensuing Occupy movements that this sanguine view of investment was truly and directly challenged. The culture of skepticism that inevitably followed is the only culture your next client has ever known.

A thumbnail history from an armchair philosopher, I know. It is one thing to talk about cultural difference, another thing to recognize it when it's staring you in the face, looking genuinely puzzled by your life's work.

The problem, therefore, is not that tomorrow's investors are naive. Many do know precious little about the investment world, it's true. But compared to previous generations, they also know too much.

Until we carve new paths in the overgrown industry they've inherited, we might as well be asking them to go to the moon.

Mike West is senior partner and chief executive of BPV Capital Management .


What do you think?

View comments

Recommended for you

Latest news & opinion

New Jersey fines David Lerner Associates for nontraded REIT sales

Firm will pay $650,000 for suitability, compliance and books and records violations.

Report predicts $400 trillion retirement savings gap by 2050

Shortfall driven by longer life spans and disappointing investment returns.

Wells Fargo will ramp up spending to lure brokers

Wirehouse, after losing 400 brokers in first quarter, is bucking trend among rivals who have said they are going to cut back on spending big bucks recruiting veteran advisers

DOL fiduciary rule pushes indexed annuity carriers to develop new products

Insurers are introducing fixed-rate deferred annuities with income guarantees to circumvent BICE.

Trump is gutting rules that Corporate America hates

With executive orders, bureaucratic actions and unprecedented use of an obscure statute, the administration has killed or postponed dozens of regulations.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print