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The Election as a Metaphor for Financial Planning

Some things to think about as Election Day nears.

David J. Drucker, 10/16/2008

The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar.

Here's what we know.

1. About 75% of all financial advisors vote Republican.

2. Republicans don't like to fill their heads with nonsense, such as anything that might expose them to how non-Republicans think about the world. Now, I don't really expect to change anyone's mind with this column--that is, get you of the GOP faith to change your vote. But at least hear what I've got to say. Because the election and what the two political parties have come to stand for mirror some of the same issues we grapple with year after year in the financial planning profession--namely, the question of who needs our service, who gets our service, and at what price to all?

Why do we vote the way we do? Because our parents voted that way or, even more encompassing, our family for generations has voted that way. Because our main concern is taxes and one party has always stood for low taxes. Or because our main concern is gay and lesbian rights, and one party has always championed those rights more than the other. Or maybe because one party better represents us in terms of our social standing and wealth profile than the other. Are those good reasons to vote for a particular party? Yes, if you think self-interest, alone, should be the force that guides your vote.

Now before you try and anticipate what I'm going to say or, for that matter, who I am--politically speaking--I want to share my own political odyssey with you. I grew up in a Democratic, Jewish household (most minorities vote Democratic, with some exceptions), but I turned against those beliefs in my early 20s. Business school has a way of doing that to you. After graduating with my MBA, I was thoroughly indoctrinated in the ways of capitalism and free markets, and their greatest defender--the Republican party.  Although I registered as an Independent, I voted Republican about two thirds of the time, a habit that eventually came to a screeching halt.

Why? It took time--maybe too much time--but I eventually learned that the way capitalism really works and what I'd learned from the textbooks used in my MBA program were undeniably different. In textbooks, the free markets work without fail. In the real world, we have the Arthur Andersens, Enrons, AIGs, WorldComs and, most recently, Lehman Brothers, whose common thread, it seems to me, is greed. Free market capitalism may be the best economic system in the world, but it's not a perfect system because human failings undercut the theoretical workings of a capitalistic society. And who gets hurt? The little guy. Any Republican (or Democratic) financial advisor with an empathic bone in his body should be able to feel for the Enron employees who lost 401(k) dollars invested in Enron stock which, for many, was the better part of their life savings.

It was this realization that focused my attention even more tightly on the question of Politics versus What's Really Important. The political process has a way of reducing What's Really Important down to a few key issues--issues that often are of little importance in the total scheme of things: abortion, gay rights, even taxes. Let's face it, the really tough issues are extremely difficult to get our minds around. Understanding (much less resolving) the health-care crisis, for example, seems insurmountable; it's much easier to focus on one or two issues that are more black and white and, hence, tend to be partisan issues. Health-care reform will be extraordinarily complicated; the abortion issue, by comparison, is a straightforward, black and white issue that one either accepts or rejects. If I focus solely on abortion in making my political choice, then I don't have to work my brain overtime trying to deal with the more complicated issue of who's the best candidate to successfully carry out health-care reform (which would require me to at least attempt to understand the failings of our health-care system).

Are we a nation of thinkers? It would seem not. One-issue campaigns dumb down the political process so those of modest educations (which includes more and more Americans all the time) can grasp just enough to elect the candidates their parties want elected. Thoughtful discussions of the thornier issues by voters are uncommon--unless they are thinkers.

What does any of this have to do with financial planning?

Financial planning is like election politics in many ways. First, most advisors serve the wealthy, just as I think Republicans do. Republicans justify it by saying that benefits will trickle down to the poor and middle class. But how do advisors justify serving mainly the wealthy? "It's the only business model that works," they say. Or, more precisely, it's the business model that will support those advisors in the lifestyles to which they've become accustomed. Hey, its a free world (sort of). There's no legal requirement to serve the middle class. But is there a moral one?

Second, Republican campaigns, in my opinion tend to attract voters with one or two emotion-laden issues--to the avoidance of all others. Abortion is one example, but terrorism's an even better one. The single-issue focus simplifies things and, because it taps into voters' deepest fears and other emotions, it overshadows other important issues. In financial planning, investment management and taxes play this role. Some advisors worry more about beating the market than about whether their clients have essential insurance coverages or estate planning strategies in place. In so doing, they train their clients to focus on the wrong things or on too narrow a picture of what financial planning really should be. It's easier and more profitable to address just the more obvious planning necessities. And in the same way that some advisors put all their energy into minimizing their clients' tax loads, they make taxes the only important election issue ("I'm for lower taxes, and so is McCain. I know who I'm voting for!").

We can't make financial advisors serve the middle class, and we can't force our presidents to care equally for all segments of society. But the religions we follow say we should care. Deep down in our hearts, we know we should care. And maybe it will become empirically obvious that we all must care as our country's institutions continue their downward spiral. When American students rank fortysomething globally in academic achievement, when the quality of our health care and number of citizens who have it slips below that of most countries with socialized medicine--how can we possibly hope to make the American Dream accessible to all Americans and, by so doing, keep this country afloat?

Maybe trickle-down economic policies no longer work. We need to build and strengthen the middle class and everyone wins. It's the difference between short-term fixes on the way to a doomed civilization or long-term solutions on the way to the best country ever--just like serving only the wealthy for quick and easy gain vs. helping develop the middle class so we feed our future supply of wealthy clients.

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