THE ERA OF TRUMP

[apeman]

During dotcom melt-up, is it in best interest to be buying dot com corps, or staying out of the bubble? Any fiduciary who told a client to sit out would miss out on years of huge earnings -- is that a meritorious lawsuit? When the bubble collapses, does the fiduciary get his judgment reversed?

Some investments properly have 30+ year horizons. How we gonna litigate that?

Even better, some of the trial court judges I know well in fancy Manhattan are technologically and financially illiterate. Should be fun.

IS the absurdity of the fiduciary rule setting in?

Because you must realize, fiduciary rules mean nothing -- literally nothing -- without the backing of lawsuits.

[SuburbanFarmer]

Is your post responsive to any of the things that I wrote? I can't even tell if you agree or disagree, just sense an edgy cynicism.

You cannot determine ahead of time which investments are in your client's best interest. My boss told hi adviser he wanted to "get conseravtive" 4-5 months ago, and his adviser put him in bonds. Terrible call.

Did the adviser act in my boss's best interest? I dunno, let's have a 5 year trial, spend 100K on discovery, and have a jury determine it.

Yes, you proposed that imposing a Fiduciary Responsibility on financial advisors would lead to malpractice suits, and legal nonsense.

I countered by saying (basically) 'well what's the fucking point of having one then?'
I went on to say that I'm fine with that parasitic 'industry' going away, but it won't. It's a danger to massive pension and benefit funds, without even a facade of responsibility for where it is placed. Every "investment advisor" will basically just pitch the most profitable option for his own bank, and that will be that.

You're right, though, that there's no good way to ensure this. I guess the best answer is not to put anything in a retirement account, because "fuck everybody, I got mine" is the rule of the day.

[Fife]

Caveat emptor.

[Speaker to Animals]

It's now "some dude that will tell you where to put money, based on whatever-the-fuck"

Correction: that's what it always was before, is now, and forever will be, no matter how many laws you pass to the contrary.

[apeman]

GCF, you are failing to recognize the difference between a utopian ideal (investment pro has your best interest in mind) and the making of a rule to try to force that utopian ideal.

Who would really win with the fiduciary rule?

Me. I have an office off wall st, and I am a financially literate lawyer. I benefit. No one else.

Never forget the tailor when you are off paying for your broken windows

[Speaker to Animals]

I mean...

I'd personally like it if my real estate agent's interest wasn't in getting me to pay the most money possible for a house. That would be ideal. But that's not the reality. I have to deal with my real estate agent knowing that his interest in the highest possible closing price, whereas my interest in reaching the lowest possible closing price. Where our interests align is in finding me a house I actually want to buy because it suits my needs. As long as I know where our interests align and where they don't, I can make rational choices.

The areas were we might need reform is in hiding interests from clients. But I suspect there likely already were laws on the books dating back generations that make hiding conflicting interests from your financial advisory clients a crime. Maybe I am wrong about that, but if I am, then I would be happy to propose a bill that replaces this silliness we have now with a law that requires advisors divulge any direct interests they have in some transaction.

[apeman]

I mean...

I'd personally like it if my real estate agent's interest wasn't in getting me to pay the most money possible for a house. That would be ideal. But that's not the reality. I have to deal with my real estate agent knowing that his interest in the highest possible closing price, whereas my interest in reaching the lowest possible closing price. Where our interests align is in finding me a house I actually want to buy because it suits my needs. As long as I know where our interests align and where they don't, I can make rational choices.

The areas were we might need reform is in hiding interests from clients. But I suspect there likely already were laws on the books dating back generations that make hiding conflicting interests from your financial advisory clients a crime. Maybe I am wrong about that, but if I am, then I would be happy to propose a bill that replaces this silliness we have now with a law that requires advisors divulge any direct interests they have in some transaction.

+1

We don't need more laws so much as we need to enforce what we've got. Hiding something from client, knowing client will reasonable rely on what your saying to the contrary? Fraud.

But the idea of: "was this investment in my best interests" is really a post-facto judgment.

....
in any case, the market figured it out. Index funds and ETFs are surging in popularity, and even behemoth state pension investment entities are allocating more and more to low fees indexes. No concerns about double dealing there.

Now, the pendulum will swing this way that then that way, eventually we will find value in active management again.

[apeman]

But the idea of: "was this investment in my best interests" is really a post-facto judgment.

Put another way, we are happy to pay Ray Dalio 2 and 20 when he is returning 20% in risky investments (now that was in my best interests!)

But when Ray returns 0% next year and still charges his fees, we are not so happy (that was NOT in my best interest, my adviser recommended these ultra high fee funds!)

[adwinistrator]

The idea that advisors can actually work in your self-interest is fucking laughable. It's hilarious that you guys believe it's even possible.

You and your advisor work towards a mutual benefit. That doesn't mean what would most benefit you personally. If it did, you wouldn't have any advisors.

....and if his employer is allowed to give him a financial bonus for directing your cash into junk bonds or mortgage derivatives?

Should work out fine, I'm sure. Those are great investments - the best. Trust me.

Literally by definition no one knows what the "best" investments are. Is it best to go all-in on central bank levitation, or best to wait it out and hope for a big correction? Is it "best" to buy index funds due to low fees (yet historically high median component values) or best to trust an active manager?

There are no actual answers to these questions, we can't see the future.

Freddie and Fannie believed MBS were among the safest of all investments, and investors believed their was an implied govt connection meaning that F&F had govt protection. So it was widely believed to be safe (S&P rated in "A" in safety) yet it wasn't.

The number of lawsuits that would come from this would be staggering, and would GUARANTEE higher fees from investment professionals (think malpractice and healthcare)/ Like many govt efforts, the rule sounds nice, but in practice it is a disaster.

This is about fiduciary duty. Please research this before making up your mind, it's not as simple as some of you are conveying.

When a fiduciary duty is imposed, equity requires a different, stricter, standard of behavior than the comparable tortious duty of care at common law. The fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, not to be in a situation where his fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from his fiduciary position without knowledge and consent. A fiduciary ideally would not have a conflict of interest. It has been said that fiduciaries must conduct themselves "at a level higher than that trodden by the crowd" and that "[t]he distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty"

CNBC - Is your advisor a fiduciary? Chances are, you have no idea (6/17/15)

Financial advisors are currently regulated under two different standards of conduct.

Investment advisors registered with the SEC or a state securities regulator are fiduciaries, subject to the duty of loyalty and due care with their clients. They are typically compensated by asset management fees and are expected to act in the best interests of their clients. If they don't, they can be sued in a court of law.

Stockbrokers, broker-dealer representatives, insurance agents and others who provide investment advice, on the other hand, are regulated by the private-sector organization Financial Industry Regulatory Authority (FINRA) or by state insurance regulators and are subject to a "suitability" standard of conduct.
Their investment recommendations must be suitable for investors based on their financial profiles, but those advisors are not required by law to act in their clients' best interest. They are often compensated by commissions on transactions that can put them in conflict with the interests of their clients.

Would you rather have an advisor that must work in your best interests alone, with no conflict, for an asset management fee?

Or would you rather have an advisor that just has to meet "suitability" standards (can't tank your accounts for a quick buck), no constraints on conflict of interest, paid for by commission?

Without fiduciary, your advisor could steer your towards a portfolio that benefits the investments of their company, and it's owners and investors, even though there may be better investments available. As long as it's a reasonable and suitable investment, no problem, even though you're possibly making less money, so that other can make more.

[apeman]

Would you rather have an advisor that must work in your best interests alone, with no conflict, for an asset management fee?

Or would you rather have an advisor that just has to meet "suitability" standards (can't tank your accounts for a quick buck), no constraints on conflict of interest, paid for by commission?

Without fiduciary, your advisor could steer your towards a portfolio that benefits the investments of their company, and it's owners and investors, even though there may be better investments available. As long as it's a reasonable and suitable investment, no problem, even though you're possibly making less money, so that other can make more.

See prior commentary about utopia vs rules to make a utpoia.

The idea that there "may be better investments available" is addressed at length as well. What is a better investment? Do you know?

I'll say it again, Freddie and Fannie and their massive MBS portfolio were "reasonable and suitable investments", in fact the safest there were for retirees allegedly, which went to near zero at one point.

And finally, the only person who benefits from this rule, is me.