We all know the story of the Stock Market Crash of 1929. By Sept. 3, 1929, the DJIA had increased tenfold over the preceding nine years, to 381. But by closing time on October 29—Black Monday—it had fallen to 230, a loss of 40%, and by 1933, the resulting depression had driven the stock market down to 20% of its pre-crash value. Not only had many people lost large portions of their portfolios, but large and small banks all over the country went under, taking their depositors’ saving with them.
The stock market wouldn’t recover for almost a decade, boosted largely by massive government spending during World War II. But the effect on the people who lived through the crash and subsequent Depression would last a lifetime. Well into the1960s my grandparents on both sides still had a deep distrust of banks and of Wall Street.
Recognizing that the country had a serious “trust” problem, newly elected President Franklin Roosevelt (whose 1932 campaign platform had been to give Americans a “New Deal”), together with the Congress enacted a series of laws designed to restructure the financial industry and resort confidence in it. Those bills included the Glass-Steagall Act of 1932 (separating commercial banks from investment banks); the Banking Act of 1933 (creating the FDIC to insure bank deposits); the Securities Act of 1933 (the first law to regulate the sale of securities); the Securities Exchange Act of 1932 (which created the SEC), and the Investment Advisers Act of 1940 (requiring adviser registration and oversight).
While these new laws obviously didn’t eliminate all the unease with the country’s financial system (e.g., consider my grandparents), they did restore enough confidence in our government to enable us to recover economically, and, together with the British and the Russians, to build massive armies and navies sufficient to defeat the Nazis and the Japanese in World War II.
Fast forward to the Mortgage Meltdown of 2008. Our government’s response to the largest market drop since Black Monday has been threefold: a massive financial bailout of the banking institutions and insurers involved, the Dodd-Frank Wall Street Reform Act, that has done little in the way of actual reform, and the Department of Labor’s new conflict of interest rules—which where hotly contested by most of the financial services industry (and which still face legal challenges).
Is it any wonder then that as Institute for the Fiduciary Standard president Knut Rostad said in a press conference Monday: “A cloud of investor distrust persists eight years now since the outset of the financial crisis.” To solve this problem, which seems beyond the abilities of our political leaders on both sides of the aisle, the IFFS announced a set of Best Practices for Fiduciary Advisors as part of its Fiduciary September 2016 initiative.
To support his claim, Rostad cited Wall Street Journal and Gallup surveys showing that “consumer confidence in the financial industry from 2008 to 2014 or 2015 shows miniscule upticks: from 10% to 13%, and 12% to 13%.” What’s more, he said, “In 2012, an Atlantic / Aspen survey asked consumers if executives of large Wall Street banks ‘share their same fundamental values’ or have a “a different set of values.” The survey found that 79% of consumers believed those executives have different values.”