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A Rootin' Tootin' Separate Thread About [Financial Regulation]
DivideByZero
Social Justice BlackguardRegistered User regular
Social Justice BlackguardRegistered User regular
Spun off of everyone's favorite mid-season sitcom/clown show, the Election Thread, whose cliffhanger ending left us dangling with investment managers' jobs at the mercy of arch-nemesis, Regulation!
So let me get this straight:
Why is Bob's job entirely dependent on commissions from third party funds? Doesn't this structure cause a conflict of interest? Doesn't/Couldn't the IRA he works for pay him a salary to direct its investments in a responsible manner?
This would also be a good place to discuss any other current or pending regulation of the financial sector, why it's good or bad, and exactly how much money is in my investment account!
Crap.
spacekungfuman wrote: »Fencingsax wrote: »spacekungfuman wrote: »spacekungfuman wrote: »spacekungfuman wrote: »spacekungfuman wrote: »The flip side is that who you vote for probably won't impact a lot of social issues much. They tend to talk about them more than act on them. But who you vote for probably does have a direct and meaningful impact on your personal finances. In the IRA investment manager context I brought up, whether a Dem or Republican wins will literally determine if these people have a job or not. That is a much greater impact than almost anything else that someone may do in office.
I really don't see how making them act as fiduciaries eliminates their jobs unless they are currently acting in ways that are...questionable ethically. Which, given the reasons for the proposed rules change, is probably likely. I mean, fiduciary requirements are not new, and its not as though people currently acting in those capacities are all volunteers who help people with their finances in between the soup kitchen and tutoring.
What they are doing is taking people who currently recommended alternative investments to IRAs in a non fiduciary salesman capacity and turning those people into fiduciaries. They are also prohibiting fiduciaries to IRAs from getting paid in connection with recommending alternative investments, even if they are in the best interest of the IRA. It literally makes it impossible to be in the business of facilitating IRA investment in alternative investments. If that was your job, you won't have a job anymore.
No, it doesn't. It just makes it impossible for their job to be paid by commission. And you know what? Most other salespeople aren't paid on commission! They just earn a salary instead! For doing their job which continues to exist! Which typically works better from both a customer service standpoint, as far as businesses are concerned, as well as from an ethical/incentive standpoint. If the billable hour were suddenly made illegal would you be fired from your job, start bartering your services for chickens, or would you earn base pay + a set percentage of profit sharing rather than one based on billable time? I'm going to guess the last one.
It bans all compensation for the service of recommending alternative investments to IRAs. That means no companies will recommend alternative investments to IRAs, so they will fire the people who did that work.
No, it bans specific forms of compensation. Unless you are literally telling me that current fiduciaries earn $0 for their work. Because I'm pretty sure that isn't the case. Otherwise how would NAPFA pay its rent?
Current fiduciaries are paid for their work, including reccomendations of alternatives because there is no prohibition on paying them. This rule is prohibiting paying for that service, even if you can demonstrate that the investment is in the best interest of the plan. Under this rule, fiduciaries cannot be paid for anything related to alternatives (by the IRA or the investment). It is a major change and the industry is pushing back hard because it will literally cost a lot of people their jobs. Whole companies will shut down.
...Does the fee paid not cover such advice?
They don't pay a flat fee. It isn't like the IRA owner just hires JPM and the JPM manages all the investments, including alternatives. These are self directed IRAs and specific companies (that the IRA is not otherwise working with) let IRA owners know about new opportunities to invest in private funds. All they do is provide information and access to these private funds. Not letting them be paid for it means they can't be paid for anything.
So let me get this straight:
- Bob works for an IRA and manages its investments
- Bob also gets paid a kickback commission from a third party fund for directing his IRA to invest in that fund
- New regulation would ban those kickbacks commissions from third party funds
- Bob is now out of a job because ????
Why is Bob's job entirely dependent on commissions from third party funds? Doesn't this structure cause a conflict of interest? Doesn't/Couldn't the IRA he works for pay him a salary to direct its investments in a responsible manner?
This would also be a good place to discuss any other current or pending regulation of the financial sector, why it's good or bad, and exactly how much money is in my investment account!
Crap.
First they came for the Muslims, and we said NOT TODAY, MOTHERFUCKERS
DivideByZero on
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Hey, I tried to make GST a thing.
Let's make GST a thing.
the "no true scotch man" fallacy.
This just seems like a great example of why the US financial sector needs a massive, heavily regulated overhaul.
The problem is that, like a real estate agent on both sides of a deal, they set themselves up as providing a good deal for person b when their interest is the opposite.
Real estate agents fix this by enforcing fiduciary duties for person B on sales agent c so long as agent c brings them to the property of fund A.
In finances there is no such fiduciary duty, when their should be, and when it's likely assumed by person B.
The economic effects of such legislation are probably positive. Promoter C won't be out of a job, the management fees of private funds will decrease by the value they were paying in kickbacks and the investors will be able to pay for the services of promoter C directly.
What that leaves us with is simply fewer perverse incentives. And if that means fewer people in Promoter Cs class(or their income decreases) that is an impliciation that Person C was perpetrating harm on the economy.
Okay. So if I'm parsing this correctly:
1. Bill has an IRA and wants to invest it in Fund.
2. In order for Bill to learn about Fund, Fund hires Charlie, a Promoter, to pitch Fund to Bill and do the paperwork.
3. Charlie doesn't tell Bill whether or not it's a good investment because that's not his job. His job is to pitch funds and sign up people like Bill.
4. Bill pays Charlie nothing.
5. Instead, Charlie gets paid by Fund, on commission, for directing people like Bill into Fund.
New regulation states that Charlie now has additional legal/ethical obligations to Bill and as such, Charlie should not be getting paid by Fund because that's a conflict of interest.
Sounds good to me.
Bill should be paying Charlie directly, through fees for recommending good investments and signing him up. That way Bill is the customer, the Fund is the product, and Charlie is the salesman who gets paid on providing good service to Bill. The way you describe the status quo is: Bill is the product, Fund is the customer, and Charlie gets paid on providing good service to the Fund, which means signing up a lot of Bills regardless of Bill's interests.
All these Charlies who are supposedly going to lose their jobs should just group up and form their own IRA advisory firms and pitch their services to the Bills. If the market can't actually support the current number of Charlies, then it's pretty obvious that they weren't providing much service to the Bills.
Just for you, buddy
People should be paid by those they provide services to. Being paid directly by funds indicates these guys are acting in the interests of the funds and not the investors.
This just seems like a very winking work-around.
Right, which is why this whole thing sounds so sketchy to begin with. Like they ring up a dude with an IRA and are all, "Yo dawg I heard you like private funds, well have I got a private fund that's just dying to get its hands on your money!"
And the dude is all, "Sounds cool, will it turn out good for me?"
"Well I can't really say either way. But they really want your money! They paid me to tell you so!"
And dude is like, "Well shit sign me up then!"
These guys sound like the Doctor Nick Riviera of finance.
The current setup is like a perfect storm of perverse incentives and obfuscation.
I was wrong before; they're not Nick Riviera, they're Lionel Hutz.
Because seller and buyer realtor on the same side of the deal is still sketchy regardless of the situation and there are even problems with seller/buyer having separate realtors (since realtors get paid out of the sellers commission).
I should have put "solve" in quotation marks because it's still not near ideal.
Because all of their compensation is still coming from the fund? So no matter if they claim to be working in the investor's interests, they're still working for the fund and not the investor. Hence they still have the incentive to get as many people as possible invested in the funds that pay them the biggest kickbacks commissions. The promoter's and fund's interests align, and who watches out for the investor? The promoter might claim to but can you really be sure?
If they're really working for the investor, the investor should pay them directly to manage their investments. Then the investor's and promoter's interests align.
And yeah, if realtors only represented sellers, then you'd probably see a whole lot of buyers getting screwed over in the real estate market. Who's watching out for their interests really? No one, even if the seller's realtor claims to be.
They sound like utterly superfluous middlemen who perform nothing of real value.
But there is still a conflict of interest though and especially when the buyers agent "just happens" to also be the agent for the sellers.
This is the same type of problematic structure
If we eliminated utterly superfluous middlemen who perform nothing of real value, we'd have an unemployment crisis as we put the majority of financial services out of work.
the "no true scotch man" fallacy.
We could always put them to work digging ditches.
At least then we'd have a whole shitload of ditches.
All I hear is "blah, blah, blah. Rich people problems. The plebes wouldn't understand."
Not trying to be a dick here, but seriously. We can't advertise because we can't be bothered to deal with six figure transactions?
Fuck those guys and the horses they rode in on.
Whoop de shit?
So register as a public company if it means that much to you. All you have provided are excuses for why this thing that totally appears to be reasonable, and ultimately beneficial for the investor, can't be done due to its inconvenience.
*wonders what would happen if it was mandatory for private investors to go public with their funds*
If the investment does badly, does the promoter suffer at all?
Is there a reason to deter them from taking a riskier investment option that gives commissions rather than a safer investment that does not?
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