Maybe what we need is a Financial Services Corps

Melissa Koide, an analyst at the New America Foundation, has an interesting idea for helping low- and middle-income American households make more-informed financial decisions. The idea is to create a Financial Services Corps of financial advisors to counsel households on today’s rather complex financial landscape.

The policy proposal has four key elements:

  1. Enlisting financial experts and advisors to deliver personalized financial counseling and planning to low- and middle-income households;
  2. Providing the tools, resources, support to local, regional, and workplace-based initiatives to ensure these families are effectively reached;
  3. Collecting & analyzing data to understand the short-, medium- and long-term financial education, counseling and planning needs of these households; and
  4. Exploring new strategies and approaches to financial education & advice — through an innovations fund.

I have a few concerns, such how to make sure the financial advisors provide unbiased advice, i.e., not biased towards certain investment strategies where the advisor has a conflict of interest (e.g., gets a commission). I also wonder whether this will be a magnet for lawsuits, filed by families upset that the well-meaning advice ended up losing them money.

But I applaud the fresh thinking that went into this. It’s an improvement over the Bush administration’s volunteer initiative for financial literacy.

The announcement by the White House is an important first step. “However,” said Melissa Koide, Deputy Director of New America’s Financial Services and Education Project, “to effectively meet the challenges of financially stressed Americans, the Initiative also needs to focus on basic financial education, consumer debt issues, and the critical role of savings. Given the financial complexities Americans face today, the Initiative should use its convening power to encourage financial experts and advisors to ensure that affordable financial planning assistance is available to Americans who are most in need of that expertise.”

The state of California — with guidance from the New America Foundation — is already moving in this direction.

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