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The Need for Education - Proving That We Are Not All Evil

By Lee Kowarski

This past weekend, the Wall Street Journal wrote an article that, among other things, encouraged investors to "be wary of investing in something you don't understand." I completely agree with this principle, but the challenge here is that most people in our country - including most investors - don't truly understand mutual funds and other "simple" investment vehicles. In fact, the vast majority of people in the U.S. don't understand most aspects of our financial system - from basic concepts such as budgeting, to more complex issues such as credit cards and investing.

The kasina Youth Foundation and its partner, Cents-Ability, have been focused on improving financial literacy in our country for years, but the difficulty of this task is only being exacerbated by the many common misconceptions in the marketplace. Everywhere people look, they read about Goldman Sachs, bailouts, and other issues that confuse them and (rightfully or wrongfully) cause them to second guess the financial institutions that - for the most part - are working diligently to create affordable products that will enable their customers' financial security. With the mainstream media generally on the attack, our industry is doing little to combat the perception that all financial services companies are evil.

Since most asset management firms are focused on intermediary distribution, they have decided not to invest much into directly educating shareholders. It is critical, however, for asset managers to recognize that they are being lumped in with the negative perception of financial services firms and must therefore increase shareholder-focused educational efforts (directly to shareholders, through financial advisors, and through third-parties such as non-profits, trade associations, etc.) and increase transparency (about how products are run, how their firm makes money, etc...). Asset managers must confront this issue head on or risk not only losing business to competitors, but losing potential investors to inaction. Firms should go on the offensive with increased direct communications, as well as by arming financial advisors with content aimed to overcome the negative perceptions that are so common today.