Where Were We?

As professionals, we owe it to our profession and our society to speak out clearly and effectively on investment-related issues that affect the lives and well-being of our fellow citizens and neighbors. We missed a great opportunity to advocate timely reform in retirement plans, but we still have the chance to advocate swift adoption of the new rules others have promulgated.The real test of a profession is how well it serves laypersons. As defined-contribution (DC) plans replaced defined-benefit (DB) pension plans, the investment management profession took no action and made no pleas for change in retirement security plans, while 20 million workers had no coverage, another 20 million workers were inadequately covered, 10 million future retirees were far too concentrated in one stock (in the same company on whom they depended for their jobs), and more than 10 million were in savings vehicles not investment vehicles.The absurdities in the retirement scene can be partly “explained” by the separate regulatory concepts and priorities of two parts of our federal government—the U.S. SEC and the Department of Labor—with control over different aspects of 401(k) plans. But although “territoriality” may explain the large mistakes made by competing parts of government, it cannot excuse our profession’s passive acceptance of the large-scale, multiyear neglect of the center of our professional realm of interest: long-term investing by lay investors for retirement security.As professionals, we all agree that individuals can benefit greatly (and our society rightly wants them to benefit greatly, so we provide large tax incentives) fromsaving—regular and repetitive,long-term, “age-appropriate” investing,diversification—the one true “free lunch,” andbenign neglect of such costly “opportunities” as switching funds and market timing.The U.S. Congress has, no thanks to us, taken action to advanceall these key points. Now, after an overlong delay, the brakes on our involvement in lay education have been taken off, so we can go immediately to Phase II: swift implementation of the Congressional ideas by plan sponsors—the people investment managers talk with several times every day. Here is what we can do now to accelerate and broaden use of the opportunities Congress has given our fellow citizens:Urge each company we cover as analysts or invest in as portfolio managers to take bold action to enroll all employees in 401(k) plans and with employees’ participating at the maximum.Do the same with our colleges and universities.Urge our employers to provide life-cycle funds.Celebrate plan sponsors who take the lead.Let us work together to help millions of workers catch up on providing the financial security they will need. Action does matter.