Juggling Dynamite

Good article in the Globe on Saturday critiquing the much hyped “Count me in, Canada” National Strategy for Financial Literacy unveiled by Canada’s federal government last week.  See: To bridge the knowledge gap, financial literacy is a two-way street.

Financial literacy is a nice-sounding concept.

But literacy requires two sides talking the same language, with clarity and full disclosure.

That isn’t always the case in the financial services industry.

Too many consumers come to the table with unrealistic expectations, and inadequate or faulty knowledge.

And financial industry players often exploit that knowledge gap by being vague about what they’re selling, and more importantly, how they’re paid.

The Ministry of Finance’s self-declared  “ambitious plan that will empower Canadians to meet their financial challenges head on” has been watered down to 13 pages of white spaces and feel good pictures, devoid of the substance needed to transform the garbage-in-garbage-out sales platitudes so commonly offered as financial planning and advice today.  The final product of years of discussion, has ended up little more than a template with the financial sector’s self-serving fingerprints all over it.

The goal, Ottawa says, is to help Canadians manage money and debt wisely, save for the future and prevent fraud and abuse. But it offers scant details of how to achieve these lofty goals. The strategy talks a lot about education, but barely a word about regulation.

That’s too bad. For years now, securities regulators have been pushing for clearer rules in two key areas – reforming mutual fund fees and mandating a “best interest” duty between financial advisers and their retail clients.

Both efforts have been vigorously resisted by the financial services industry, which insists new regulation is unnecessary.

As in America, the finance sector continues to block the fundamental reforms needed that would exact a fiduciary standard of all people working in the financial advice business. Until this happens, individuals will continue to be sold financial risk every day in every way, contrary to their best interests.  And our society will continue to pay the heavy cost of an aging population moving into their twilight years indebted and brutally under-capitalized.

The trouble with extremely over-valued assets, is that their valuations typically mean revert either through many years of stagnation or a period of abrupt losses. Either way, it can take a decade or more before valuations recover their prior cycle peak. By the time they finally do, most previous owners have long since cashed out with losses, either because they can’t afford to hang on, or because they don’t have the time or psychological strength to wait years for capital recovery.

We saw this after the Great Crash, where it took 25 years before stocks returned to their 1929 peak. We see this in American housing, where nearly 10 years after the 2006 peak, many properties and owners are still in a net loss position. We are likely to see a similar cycle play out over the next decade in Canadian realty (and other ‘hot property’ places like New Zealand and Australia) as well as in presently jubilant stock and bond markets in much of the world.  Those holding these assets today, have signed up for a trying road ahead. A generally better plan, wherever possible, is to avoid holding extremely valued assets in the first place.  See we can.

“It’s great news that the level of negative equity is falling, but what really worries me is the depth of negative equity. Millions of Americans are so far underwater, it’s likely they may not regain equity for up to a decade or more at these rates,” said Zillow Chief Economist Dr. Stan Humphries. Here is a direct video link.

We live in a time where criminal actors are routinely hiding unchecked behind the anonymity of institutions. In a civil society, individuals must be held accountable for the actions and omissions we take and direct. The corollary of this, is that those of us who witness wrongdoing, must be willing to stand up and speak out. Much turns on the way we treat our whistleblowers. See: Whistleblowers tell Senate hearing about retaliation.

At a hearing of the Senate Homeland Security and Governmental Affairs Committee, Lt. Col. Jason Amerine testified about his experience at war and being labelled a whistleblower. (U.S. Senate Homeland Security and Governmental Affairs Committee).  Here is a direct video link.