State of Personal Finance: More Transparency, Less Complexity

This post is part of a series in which LinkedIn Influencers analyze the state and future of their industry. Read all the posts here.

I don’t think it’s an exaggeration to say my industry — helping people make the most of the money they have — has never been more needed. Stagnant wage growth makes it vital for consumers to make the wisest spending and saving decisions with each dollar that is earned. Much of the private sector workforce is now responsible for navigating their way to a secure retirement by saving in a 401(k). Even public sector workers are increasingly being steered away from pensions into a retirement account they must actively save for, as well as make all investment decisions.

Meanwhile, as the foreclosure crisis in our recent rearview mirror showed us (and as today’s troubling level of student debt threatens us), handling debt remains a vexing challenge for many.

Even if your financial house is in order, there is no room to be smug. If we don’t ensure that all consumers — at all economic and education levels — are given the tools to make smart money decisions, it will have an expansive impact across the economy. Already we are beginning to get reports that the heavy student loan debt held by so many twenty- and thirty-somethings is keeping more potential first-time home buyers on the sidelines. That has a trickle-up impact: It becomes harder to trade up if you have a shrinking pool of first-timers to buy your existing home, to say nothing of the impact on home building and the ancillary industries that benefit from new-household formation.

The key to helping everyone take control of their financial future is to add transparency and simplicity. As if I need to point this out, neither happens to be central to the business plan for much of the financial services industry.

I see it every week when yet another young adult saddled with student loans tells me they wish they understood better what they were getting into, especially those who were no match for the sleek marketing of private student loans that persisted in the run-up to the financial crisis.

Or look no further than the highly contentious battle over the creation of the Consumer Financial Protection Bureau (CFPB). At its core, the mandate of the CFPB is to bring more transparency (ex. less fee obfuscation) and simplicity (ex. For the homeowners out there, exactly how clear was your final closing cost statement? Need I say more?)

But you would think the CFPB was out to nationalize the personal financial services industry, given the pushback it received and continues to face. For the record, even with more regulation, the industry remains flush: Moebs Services reports that consumers paid $33.8 billion in overdraft charges last year. That’s less than 10 percent below the record high in 2009, before new regulations were put in place that now require consumers to actively opt-in to the costly coverage.

Or consider the years it took for Washington to cobble together a slightly better fee disclosure requirement for 401(k) plans. You can’t as a nation say you are worried about our retirement security — there’s no shortage of surveys where the C-Suite says just that — and then drag your feet on making it easier for workers to better understand what their plan is costing them. That strikes me as a pretty low bar. The new regulation didn’t mandate what fees should be, but merely required some better disclosure of existing fees. Yet the blowback was pretty strong.

I want to be clear: The ultimate responsibility for taking control of one’s financial future is indeed an individual responsibility. But the deck is so profoundly stacked against the individual right now.

The complexity and lack of transparency that exists in much of the personal financial services industry makes it ridiculously hard and time-consuming for even the most motivated individual to avoid the land mines. And the economic repercussions of that sad fact should concern us all. I don't know how my industry will evolve, but it is so insanely clear what needs to happen.

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Enjoyed this post? Read what other Influencers had to say:

• Robert L. Reynolds on the State of Asset Management: The Great Challenge? Getting People Comfortable Investing Again
• Sallie Krawcheck on the State of Banking: Not Awful, Not Great, Just 'Meh'
• Elliot Weissbluth on the State of Financial Services: Embrace the Big Bang or Face Extinction

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