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'Social-Capitalism' Creates Brave New World For Mutual Fund Investors


There has been some talk that the government bailouts and industry intervention are leading America toward socialism. Whether or not that shocking and unsettling claim turns out to be true, the government will undoubtedly take greater control of the financial services industry, and that will stifle innovation, risk, growth-and wealth.

If we are to keep up, or get ahead, of our customers' lowered expectations, we will need to lower ours, as well.

GE Chief Executive Jeff Immelt lent even more credence to these theories last week at the bellwether's annual shareholder meeting, by saying that the economic crisis is "fundamentally resetting capitalism."

Immelt didn't quite allude to the socialist theories, but he did say, "We are living through history, and I don't mean that in a positive sense."

This overall slowdown in economic growth, earning projections and market returns is obviously not good news for the financial services industry. We aren't likely to return to historical norms of 9%, 10% annual growth in the stock market anytime soon, if ever at all.

Thus, we can throw out those tidy retirement calculators that show sticking with the market and expecting, conservatively, 6% growth a year to pretty much assure our investors a safe retirement.

If the multi-trillion-dollar bailouts are, indeed, setting up America for decades of unprecedented government intervention, we might as well join our investors in their current proclivity for more conservative investments. But we must take a longer-term viewpoint than our customers and carefully plan our products, strategy and advice, accordingly.

You don't have to take my word for it. Andrew Donohue, director of the division of investment management at the Securities and Exchange Commission, recently spoke about the need for our industry to change: "With the ingenuity, entrepreneurship and investor-focus that characterize [the mutual fund industry], I look forward to watching how it responds and evolves to these unprecedented market events."

I wish I could say we will return to double-digit growth, but it does appear that the unprecedented events of the past year and a half point to an unprecedented future.

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