**** Elections thread *****

[Jack Sawyer]

This rule is a wonderful example of well-intended regulations put in place by people who don't understand economics that create unintended consequences that make the economy less robust and contribute to financial crises. The Fiduciary Rule is a bad idea.

What are you saying wuf? We should not have any regulation for anything that has to do with the financial industry?

[wufwugy]

What are you saying wuf? We should not have any regulation for anything that has to do with the financial industry?

What I'm saying is that the Fiduciary Rule needlessly makes non-financial-advisers need to meet a requirement of financial adviser. The differentiation exists for a reason. Going into the details of why this creates more problems than it solves is a lengthy and complex task.

[Jack Sawyer]

What I'm saying is that the Fiduciary Rule needlessly makes non-financial-advisers need to meet a requirement of financial adviser. The differentiation exists for a reason. Going into the details of why this creates more problems than it solves is a lengthy and complex task.

If you can, please do. I'm genuinely interested as to why

[wufwugy]

If you can, please do. I'm genuinely interested as to why

By making non-financial-advisers in the finance profession need to meet a standard of financial advisers, it increases the cost of being in the finance profession yet not a financial adviser. This makes it so that in the future there will be fewer non-financial-advisers in the finance profession as well as fewer cheaper services in finance. Consumers of financial services will ultimately end up worse off because the cost of purchasing financial services will increase. Think of it this way: people who can afford financial advisers buy them, but people who cannot may only get some measure of input from non-advisers. With the Fiduciary Rule, that goes away; people who can't afford the cost associated with the Fiduciary Rule will get even less of an understanding of their finances than before.

Compliance with the rule would itself be very hard, perhaps even impossible. It depends on who it covers. A powerful rule would go a long way towards turning the finance profession into something that only wealthy people can get into, as well as only wealthy can consume.

The core cause of financial crises is something called 'asymmetric information" (made up of adverse selection and moral hazard). The goal of financial regulation is to reduce asymmetric information (even though it often does the opposite). A way in which this would probably increase asymmetric information is by the moral hazard caused by consumers overvaluing non-financial-advisers' statements than they otherwise would. Right now, it is common knowledge that an insurance broker is not a financial adviser, but if the Fiduciary Rule is enacted, the distinction would dissipate to a high degree and consumers would be more likely to think that listening to the financial claims of an insurance broker is just as good as from an actual financial adviser.

[Jack Sawyer]

By making non-financial-advisers in the finance profession need to meet a standard of financial advisers, it increases the cost of being in the finance profession yet not a financial adviser. This makes it so that in the future there will be fewer non-financial-advisers in the finance profession as well as fewer cheaper services in finance. Consumers of financial services will ultimately end up worse off because the cost of purchasing financial services will increase. Think of it this way: people who can afford financial advisers buy them, but people who cannot may only get some measure of input from non-advisers. With the Fiduciary Rule, that goes away; people who can't afford the cost associated with the Fiduciary Rule will get even less of an understanding of their finances than before.

Compliance with the rule would itself be very hard, perhaps even impossible. It depends on who it covers. A powerful rule would go a long way towards turning the finance profession into something that only wealthy people can get into, as well as only wealthy can consume.

The core cause of financial crises is something called 'asymmetric information" (made up of adverse selection and moral hazard). The goal of financial regulation is to reduce asymmetric information (even though it often does the opposite). A way in which this would probably increase asymmetric information is by the moral hazard caused by consumers overvaluing non-financial-advisers' statements than they otherwise would. Right now, it is common knowledge that an insurance broker is not a financial adviser, but if the Fiduciary Rule is enacted, the distinction would dissipate to a high degree and consumers would be more likely to think that listening to the financial claims of an insurance broker is just as good as from an actual financial adviser.

Ok, costs. But it honestly sounds like exactly that which I am looking for. From investopedia:

The Department of Labor’s definition of a fiduciary demands that advisors act in the best interests of their clients, and to put their clients' interests above their own. It leaves no room for advisors to conceal any potential conflict of interest, and states that all fees and commissions must be clearly disclosed in dollar form to clients. The definition has been expanded to include any professional making a recommendation or solicitation — and not simply giving ongoing advice. Previously, only advisors who were charging a fee for service (either hourly or as a percentage of account holdings) on retirement plans were considered fiduciaries.

Advisors who wish to continue working on commission will need to provide clients with a disclosure agreement, called a Best Interest Contract Exemption (BICE), in circumstances where a conflict of interest could exist (such as, the advisor receiving a higher commission or special bonus for selling a certain product). This is to guarantee that the advisor is working unconditionally in the best interest of the client. All compensation that is paid to the fiduciary must be clearly spelled out as well.

Should we not be protected from our own stupidity a all times? Particularly when it comes to financial matters?

As you might imagine, I'm looking out for the general public in all cases.

[wufwugy]

Ok, costs. But it honestly sounds like exactly that which I am looking for. From investopedia:



Should we not be protected from our own stupidity a all times? Particularly when it comes to financial matters?

As you might imagine, I'm looking out for the general public in all cases.

I get it. The rule is an attempt to reduce asymmetric information.

I doubt I could convince you that it's a bad idea. Just know that there are a lot of economists who think this type of rule is a bad idea. Economists are actually all over the place on this stuff, because it's so complex and observations are not rigorous enough that economists can get their PhDs by making antipodal cases on this topic. The economists I side with are the ones who don't contradict economic principles in the cases they make. Using government regulation to correct for asymmetric information is largely a political idea, and it has a terrible track record of actually working. Very key asymmetric information caused by regulation can be pointed at regarding the causes of the Great Recession (and the Great Depression and others).