Cleaning Up Someone Else's Mess

Over a brief 72-hour period, presumably with long hours and heated discussion, partisan politics prevailed while the United States House of Representatives of the 110th Congress reached their now famous, non-passing vote. This resulted in no Congressional action being taken on September 29, 2008, in support of all investments floundering in close proximity to our U.S. federal housing agency securities market.

The accompanying “shock felt “round the world” delivered a critical, if not fatal, blow to the U.S. economy and corresponding markets. During the month of September, your world has been altered through exogenous activities.

Our Economy

I am fortunate to have had the opportunity to travel abroad when working with government-sponsored assets and social retirement systems. Most overseas investment advisers who work with participants are faced with challenges strikingly similar to our own:

• Promoting personal savings among the registered (tax-paying) workforce
• Delivering education about savings concepts
• Building trust with clients.

In working abroad within the sphere of social policymakers and economists, I have been awakened to the level of esteem in which they held the U.S. economy. Cultural views aside, there always has been a healthy respect for our functioning U.S. economy. I cannot recall the number of times I was told, “You [as an American] have an economy.” Prior to hearing that comment the second time, I took for granted the fact that we enjoy a functioning economy. Every country does not. A functioning economy is a fragile combination of regulation, efficient markets, and trust. Prior to September 29, 2008, the United States possessed that all-important trust.

Although toxic documentation backed our primary and secondary mortgage securities market, it seemed to be working. That is until the wheels fell off the system and therein lies my disdain for the job performed by those elected to the House of Representatives. These representatives, entrusted with broad leadership responsibilities, were spell-bound by their task of serving as stewards of our economy and ultimately failed to act prudently and swiftly to provide support of a failing market. That failure had global repercussions as it immediately bled to other U.S. markets and continues to have an impact on international markets. It matters not if a particular U.S. Representative voted “yea” or “nay” on September 29. What does matter is that a solution needed to be found and communicated before trust and confidence were eroded and the inefficiency crept into other markets. That did not occur and we will all pay the price for a long, long time. The most respected and emulated economic system on the globe has been relegated to an “also ran” in the minds of everyone outside the U.S. I believe the rest of the world looks at it as if the U.S. system was built on a “house of cards” and, now, they come to find out that the U.S. system was a poorly conceived attempt and it failed. Over time, the U.S. investor may choose to forget the mortgage meltdown; however, outside our borders, most will never forget.

What Does This Mean for You?

Since you have chosen to remain in this business, your responsibilities now include your being a cheerleader for the U.S. economy.

You, or someone in your group, most likely has spent between 20 to 60 minutes per plan between Sept. 29, 2008, and the time you read this article speaking with each plan’s C-suite on a variety of subjects ranging from extolling the virtues of the plan to discussing the mortgage meltdown. Clients have been affected negatively by this in so many ways, cementing the reality that this will be “an agenda line item” on every 2008 annual review that you perform.

Plan participants are demanding of plan committees and company leadership at companies sponsoring 401(k) plans that they speak with someone! That is understandable. They have read that there are unscrupulous people on Wall Street who have enriched themselves with perks and paydays at the investor’s expense. Unfortunately, you are likely the participant’s closest connection to Wall Street—and, for some, you may embody those institutions.

Although it is not the best position to be occupying right now, our industry needs great advisers skilled in effectively communicating with clients.

Steff C. Chalk is CEO of the Fiduciary Consulting Group, a fee-only fiduciary consulting practice serving corporations and nonprofits. A judge for the PLANSPONSOR Retirement Plan Adviser of the Year award, and a faculty member of the PLANSPONSOR Institute, he is also the co-author of How to Build a Successful 401(k) and Retirement Plan Advisory Business.