"While concerns about improper actions by investment advisors should certainly be addressed, an overly broad proposal could price professional financial advice beyond the reach of many modest income families."

I don't normally use canned quotes emailed to me in advocacy group press releases, but those remarks attributed to Financial Services Roundtable chief Tim Pawlenty in a blast that went out Monday afternoon are so on point that I couldn't help but use them. He's absolutely got the economics of this correct. If the Obama administration succeeds in forcing investment advisors to give advice that's actually in their clients' best interests, it really will put a lot of investment advisors out of business. But rather than making the case against new regulations, it underscores exactly why they are so necessary.

Giving good advice is bad business

It's extraordinarily difficult to beat the average returns on the stock market. But if you could do it, the skill would be extraordinarily valuable. There's no way you'd put that skill to use giving occasional portfolio advice to a broad group of every day working people. You'd run a hedge fund. You'd be an asset advisor to a well-endowed university. You'd dispatch advice to people with tens of millions of dollars in a trust fund. You'd put your money skills to work, in other words, in places where there's money to be made.

This of course raises the question of what it is that brokers who serve the middle class — people at mass market brokerages who pick up the phone when you dial the number on your company's 401(k) site — are doing to make money. The answer is that they are earning a living marketing financial products that are profitable to their employer and disguising the marketing as advice.

There is nothing wrong with marketing, of course. The world needs salesmen. But in a properly functioning economy, we understand that the car salesman works for the dealership — he's not your car advisor. Obama is proposing to force people who purport to be advising on investment strategy to actually give good advice and reveal conflicts of interest. That the bank lobby claims this will put their advisors out of business is a damning indictment of the way they've been running their industry. More formal studies show the same thing, that investment advisors reenforce their clients' worst instincts, "encourage returns-chasing behavior, and push for actively managed funds that have higher fees, even if the client starts with a well-diversified, low-fee portfolio."

Investment without advice

The good news is that while a normal person can't afford the advice of top-tier Wall Street talent, all the advice you need is available for free. You probably need to save more and you definitely need to find a low-fee mutual fund that passively holds a diverse portfolio without charging you an arm and a leg for it. Your ability to correctly answer some very basic questions about financial literacy will give you a leg up.

That's it. Don't try to beat the market. Don't pick stocks. Don't try to time investments. Just save a prudent amount each year, and sock it away in a low-fee diversified portfolio. But if someone tries to sell you financial advice, be very skeptical. He's not legally required to give you advice that's actually in your interests, and the guy lobbying on his behalf in Washington is telling journalists that if he did have to give you good advice he'd go out of business. That's the kind of advice you really don't need.

Correction: This article originally described Tim Pawlenty as the head of the Financial Services Forum, but the group is actually called the Financial Services Roundtable.