Both large and small investors are cynical, says BlackRock Chairman and CEO Laurence Fink. Incessant financial scandals and doom-and-gloom headlines over the years have prompted many to feel that the markets are stacked against them, Fink writes in an op-ed piece for The Wall Street Journal. Plus, the government seems unable to tackle its fiscal problems.

"The result is profound uncertainty about the road ahead, a lack of trust in political institutions and paralysis in markets," he writes.

As uncertainty holds back investors, it restrains the economy and workers' retirement funds, which are already inadequate.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

But the financial services and banking industry, as well as the government, has to do its part to restore investor confidence, Fink argues. The financial services industry must work with regulators to improve clarity for investors while not reducing investing opportunities.

Fink takes aim at the mutual fund industry.

"The stiff opposition of the mutual fund industry to efforts by the Securities and Exchange Commission to reform the regulation of U.S. money-market funds does not instill the sort of trust we need," he asserts.

"Financial firms have a responsibility to be crystal clear about how their interests are aligned with those of their clients, and should be transparent about the fees and risks associated with the products they sell."

To help restore investor trust and improve their returns, Fink says, financial firms must promote financial education and transparent products that are easy to understand.

The government, for its part, must reach a bipartisan agreement to avert the fiscal cliff and simplify the tax code by decreasing the large number of temporary provisions.

The SEC dropped its proposal for tighter mutual fund regulations in August, but picked it up again after Treasury Secretary Timothy Geithner said the Financial Stability Oversight Council might designate mutual funds a systemic threat if the SEC doesn't act, Bloomberg reports.

Geithner recommended that the SEC consider floating net asset values, requiring funds to hold capital buffers and imposing capital and enhanced liquidity standards. Those ideas are similar to proposals the SEC was considering.

However, mutual funds might still be able to derail regulation efforts, experts told Bloomberg.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans