1980s debt yielding to '90s savings Securities firms expect big business

December 26, 1992|By James Russell | James Russell,Knight-Ridder News Service

Just as the 1980s were reviled as the decade of debt and wretched excess, the 1990s are being viewed by Wall Street as a period of savings and investment.

The sellers of stocks, bonds, mutual funds and all sorts of financial products see the future as a promising age for their business, and they are gearing up to capitalize on it.

The trend was clear as the Securities Industry Association met recently for its annual convention. Riding a wave of prosperity, securities firms are targeting Washington and Main Street as they sense renewed interest in saving and investing.

"We plan to work closely with the new Clinton administration and with Congress about our proposal to increase savings and investment by individuals and businesses," said Thomas M. O'Donnell, chairman of the SIA.

The industry has been urging a cut in the federal tax on capital gains and a restoration of a general individual retirement account. Both steps would benefit Wall Street.

But they would play well, too, among millions of individual investors who are staking much of their financial security on something other than low-yielding bank deposits.

Studies by the SIA show that individuals' liquid financial assets -- such as stocks, bonds and bank deposits -- grew to $7.85 trillion in 1992, from $3.15 trillion in 1980. Bank deposits shrank to 37 percent of the total, from 48 percent.

The biggest percentage increase was in mutual funds, which now account for 16 percent of individuals' financial assets.

Stocks and bonds, owned separately and through mutual funds, have come on strong. Securities executives are delighted, and they are convinced that the Clinton administration shares many of their views.

"Bill Clinton's economic stimulus package will include savings and investment incentives that will help push the stock market higher," said Jon Fossel, chairman of Oppenheimer Management Corp. "The market should provide an average annual return of 12 to 15 percent for the next three years."

Mr. Fossel predicts that Congress will expand IRA eligibility and enact a capital gains tax cut for long-term investors, entrepreneurs and small-business owners.

IRAs were born more than a decade ago to allow anyone to salt away long-term savings on a tax-deferred basis. A few years later, Congress took away much of what it had given, limiting IRAs to people not covered by regular pension plans.

When IRAs were open to everyone, Wall Street firms attracted a surge of business. They saw much of it vanish once the retirement accounts became strictly limited.

A staunch supporter of a broadened IRA policy is Sen. Lloyd Bentsen, Mr. Clinton's treasury secretary-designate. The treasury post is an influential one in economic policy-making in Washington.

Even without new federal initiatives to encourage saving, the securities industry has been thriving through increased sales of its products and services. This is shaping up as a record year in revenues and profits for the business.

Revenues of securities firms are expected to reach $64 billion in 1992, with pretax profits near $7 billion. The industry struggled through a painful streamlining and cost-cutting two years ago, setting the stage for the current recovery.

The focus for securities firms through the rest of the 1990s will probably be on managed accounts and total investment guidance, rather than the simple commission-based selling of stocks and bonds.

Increasingly, the term "stock broker" is being replaced by "financial consultant" or "financial adviser" in designating members of securities firms' sales forces. Mutual funds and "wrap accounts" are rapidly growing segments of the business, both featuring professional money managers to handle customers' funds.

Recently, Fidelity Investments, with 66 offices around the United States, announced a program to teach investors how to spread their capital around for maximum advantage or to arrange for "wrap" accounts by using managers.

The securities industry appears to be changing how it does business to capitalize on the new emphasis on saving and investment. It could hardly have chosen a better time.

Investment strategists who spoke to the SIA convention said the economy was embarking on what one called "a long-lasting recovery."

"We are bullish on the economy and on the outlook for financial assets," said Abby Joseph Cohen of Goldman Sachs. "We expect at least two years of profit growth for American corporations, accompanied by increases in dividends. Bonds will do well, but stocks will do better."

Robert Barbera, chief economist for Shearson Lehman, said individuals are strengthening balance sheets, much as corporations are.

"We now are unwinding the debt excesses of the 1980s," he said. "Debt restructuring has set the stage for a meaningful recovery."

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