Financial News

[NorthSideSox72]

Wow.

 

Edit: not too surprised though, have had friends turn down jobs with caterpillar not wanting to move.

That's the key thing, and why all these corporations that had or have bases in the suburbs or ex-urbs are moving their executive and management roles and headquarters downtown so regularly. It's actually more costly in the direct sense, but gets them a much better base of talent.

 

[bmags]

That's the key thing, and why all these corporations that had or have bases in the suburbs or ex-urbs are moving their executive and management roles and headquarters downtown so regularly. It's actually more costly in the direct sense, but gets them a much better base of talent.

 

I hope IIT uses this as a boost and tries to create a relationship and recruiting point with caterpillar. IIT has too good of a history to have fallen off this much.

[StrangeSox]

Trump is set to repeal the recent "fiduciary rule" that would have forced investment advisers to provide advice that would benefit the customer the most rather than 'suitable' advice that isn't necessarily bad but it more profitable for the adviser than other potential options.

 

Their reasoning is, uh,

 

 

 

Anyway, good lesson to everyone to make sure you know exactly what sorts of fees you're paying on your accounts, what the expense ratios of the funds you're invested in are, and if you use a financial adviser of some sort, what their fees are and how they actually make their money. My wife and I are going with the fee-for-a-service option once we find a suitable adviser in the near future who'll set down and review everything for us, but won't actually handle the money. Don't have to worry about conflicts of interest regarding commissions that way or a perpetual 1-3% vampire sucking away your funds.

 

old Frontline episode on the looming retirement crisis http://www.pbs.org/wgbh/frontline/film/retirement-gamble/

Edited February 3, 2017 by StrangeSox

[southsider2k5]

Having been to the most recent FINRA conference last year this rule was a big topic of discussion. FINRA basically said that Congress had no discussion with them about this rule, what it meant, and how to enforce it. It was a gigantic clusterf***. I understand the idea of what they were wanting to do here, but they basically put together an unrealistic and more importantly an unenforceable jumble of legalese to paper. It was basically going to run smaller firms out of business, and leave only the Goldman's of the world standing in the advisory roles because the compliance costs for small firms trying to prove something that is unprovable were going to produce a cost structure that was impossible for them to overcome.

 

Realistically it wasn't going to what Congress wanted because they have no idea how this structure actually works.

 

And that was what the body responsible for enforcing it had to say about it.

[StrangeSox]

Fair enough, and that's a heck of a lot better of an explanation than "people should be free to be gouged on commissions and fees they might not understand!" the administration has put forward.

[southsider2k5]

Fair enough, and that's a heck of a lot better of an explanation than "people should be free to be gouged on commissions and fees they might not understand!" the administration has put forward.

 

Yeah, honestly I don't really care what the Trump admin has to say about it, but the rule was going to be a disaster.

 

Think about it, how do you prove with every single customer interaction that was taken in an advisory role that you acted in the customers best interest, because that is the regulatory burden here.

[NorthSideSox72]

Yeah, honestly I don't really care what the Trump admin has to say about it, but the rule was going to be a disaster.

 

Think about it, how do you prove with every single customer interaction that was taken in an advisory role that you acted in the customers best interest, because that is the regulatory burden here.

Thing is, those rules already exist in other ways.

 

For example, brokerage rules cover Best Price for customer in execution. That's easy to prove out, because you can just look at the order book at that time and see if it's within the spread. There are also conflict of interest rules in banking that cover things from another angle.

 

This specific rule was setting an unproveable and unworkable standard. Like you said, the aim was good, but you can't prove something this dynamic or soft. It's a well-intentioned rule that was botched in legislation.

 

[StrangeSox]

Aren't there already forms of 'fiduciary duty' rather than 'suitable' that are enforced in the industry through industry-adopted standards? And how is the 'suitable' standard enforced? I thought CFP's were already held to the fiduciary standard?

 

I'm obviously not nearly as familiar with this stuff as you guys, but I'd imagine that the enforcement would be along the lines of say wage discrimination. It's something that would have to be shown retroactively in a large group of people rather than zeroing in on a specific individual client being steered toward a higher commission product.

Edited February 3, 2017 by StrangeSox

[southsider2k5]

Aren't there already forms of 'fiduciary duty' rather than 'suitable' that are enforced in the industry through industry-adopted standards? And how is the 'suitable' standard enforced? I thought CFP's were already held to the fiduciary standard?

 

I'm obviously not nearly as familiar with this stuff as you guys, but I'd imagine that the enforcement would be along the lines of say wage discrimination. It's something that would have to be shown retroactively in a large group of people rather than zeroing in on a specific individual client being steered toward a higher commission product.

 

No. I actually spent time in examinations and enforcement. The regulatory structure of financial products is nothing like this. You quite literally have to be able to prove you are obeying the rules. Even not being able to prove that is against the rules for the people in charge. You have to have a well detailed system of showing how you are following the rules, and have a system of proof in place to show how you are doing it. The detail that goes into these logs already is expensive and onerous. You get fined for not having logs to prove whatever rule is being talked about.

 

Again the burden here would be that advisors would have to be able to prove that with every single customer interaction in an advisory role that they acted in the best interest of the customer, and NOT that FINRA would have to prove they didn't. That is not how financial regulation works. It is exactly why it is so damned expensive for compliance in this sector.

[StrangeSox]

Ah, did not know that. The industry I work in is similar to that in some ways (nuclear), though I would argue that at least in that case it's for a very, very good reason.

 

I guess my advice to everyone is to listen to John Bogle; invest in low-cost index funds like those offered by Vanguard or Fidelity. edit: I need to find and thank whoever manages our 401(k) at work for getting at least a couple of Vanguard funds in there. 0.08% annual operating expense compared to every other fund being over 1%. At a hypothetical 100k balance, that's a $24k difference over 30 years.

Edited February 3, 2017 by StrangeSox

[southsider2k5]

Perfect example from experience.

 

I spent most of my time working on order desks. For any order which could not be placed by computer and time stamped in that manner, we would write an order by hand on to an order form. Regulations require that each order got three time stamps. One when taken, one when confirmed, and one when placed with the floor. Because of that FINRA has rules in place requiring the regular checking of the time clocks to ensure they are within such and such time of the actual time it is. Because of that rule we had to keep a log that proved that at least once per shift that someone checked all of the time clocks on the order desk, and which ones were changed, by how much, if they were inaccurate. We had to note if a specific time clock was inoperable and who was informed about it.

 

The burden was not that FINRA could walk in the door at any time and check our clocks. It was that we had to prove that our clocks were in compliance the whole time.

[southsider2k5]

Ah, did not know that. The industry I work in is similar to that in some ways (nuclear), though I would argue that at least in that case it's for a very, very good reason.

 

I guess my advice to everyone is to listen to John Bogle; invest in low-cost index funds like those offered by Vanguard or Fidelity.

 

My main retirement stock investments are always low cost index funds.

[StrangeSox]

crap this just reminded me that I have an old rollover IRA in Prudential that I need to move over to Vanguard or Fidelity or someone ASAP

[Chisoxfn]

Having been to the most recent FINRA conference last year this rule was a big topic of discussion. FINRA basically said that Congress had no discussion with them about this rule, what it meant, and how to enforce it. It was a gigantic clusterf***. I understand the idea of what they were wanting to do here, but they basically put together an unrealistic and more importantly an unenforceable jumble of legalese to paper. It was basically going to run smaller firms out of business, and leave only the Goldman's of the world standing in the advisory roles because the compliance costs for small firms trying to prove something that is unprovable were going to produce a cost structure that was impossible for them to overcome.

 

Realistically it wasn't going to what Congress wanted because they have no idea how this structure actually works.

 

And that was what the body responsible for enforcing it had to say about it.

The biggest flaw was two fold...one how do you litigate against it...a total disaster from that perspective, and two, with the increased cost of compliance, etc, associated with it, the lower to middle class consumer will get pushed to the side, because you won't be able to generate the returns to meet the costs for those investors. Huge huge issue with both good and bad parts to the legislation (imo).

[Chisoxfn]

Fair enough, and that's a heck of a lot better of an explanation than "people should be free to be gouged on commissions and fees they might not understand!" the administration has put forward.

The explanation I saw was this, which I found awful:

 

“We think it is a bad rule. It is a bad rule for consumers," said White House National Economic Council Director Gary Cohn in an interview with The Wall Street Journal on Thursday. “This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.”

[southsider2k5]

The biggest flaw was two fold...one how do you litigate against it...a total disaster from that perspective, and two, with the increased cost of compliance, etc, associated with it, the lower to middle class consumer will get pushed to the side, because you won't be able to generate the returns to meet the costs for those investors. Huge huge issue with both good and bad parts to the legislation (imo).

 

From a consumer side, there would be no good reason to take on low net worth individuals. That is a great point and one I hadn't even thought about. You are spot on that you would never generate enough in commissions to make up for their added compliance costs.

[Chisoxfn]

From a consumer side, there would be no good reason to take on low net worth individuals. That is a great point and one I hadn't even thought about. You are spot on that you would never generate enough in commissions to make up for their added compliance costs.

I am vividly familiar with the matter (as like you, there are direct impacts to my industry / company). The big issue was the department didn't really listen on those two pain points and how to streamline / enhance the process. That said, there are a lot of really good things that are included within the legislation as well.

 

Another thing that is really odd to me is why should 401K money fall under one-set of rules while other funds don't. SEC is really who should be weighing in on this, imo.

[StrangeSox]

BTW this announcement was part of a much larger announcement regarding Trump's executive order to begin rolling back financial regulations bigly.

 

https://www.washingtonpost.com/news/busines...m=.7588ee2fe490

 

 

[southsider2k5]

I am vividly familiar with the matter (as like you, there are direct impacts to my industry / company). The big issue was the department didn't really listen on those two pain points and how to streamline / enhance the process. That said, there are a lot of really good things that are included within the legislation as well.

 

Another thing that is really odd to me is why should 401K money fall under one-set of rules while other funds don't. SEC is really who should be weighing in on this, imo.

 

FINRA flat out said in the conference that they (as in the regulators) did not ask for this rule, and they did not want this rule. This was all on Congress.

[StrangeSox]

The idea that someone can call themselves a "financial adviser" and sell you high-cost, high-fee investments that are better for their pocketbook than yours seems like a bad idea, though.

[southsider2k5]

The idea that someone can call themselves a "financial adviser" and sell you high-cost, high-fee investments that are better for their pocketbook than yours seems like a bad idea, though.

 

You can't just "call yourself" a financial advisor and be one. There is licensing and rules that goes with it. As was eluded to before, a decent amount of this is covered in existing rules. What isn't in there could have easily been included in the tightening of existing rules, or clearer clarification of them.

 

This was taking a machete to pop a pimple.

[Chisoxfn]

FINRA flat out said in the conference that they (as in the regulators) did not ask for this rule, and they did not want this rule. This was all on Congress.

Congress was not a proponent of the DOL. The other main regulatory bodies kind of all stayed out of it. In fact, at various times there were many democratic and republican congressmen against the ruling due to the flaws.

[Chisoxfn]

The idea that someone can call themselves a "financial adviser" and sell you high-cost, high-fee investments that are better for their pocketbook than yours seems like a bad idea, though.

Financial advisors already rules they have to follow...this was just taking it another step further by making the advisor a fiduciary and with that comes significant challenges. Just think if 5 years later you look at your investment or insurance product and go, geeze, this isn't so great, in hindsight X would have been better...now you sue said advisor saying what they gave you wasn't in your best interest.

 

My view is, I wouldn't do much in terms of changing the rules other then fully disclosing to the consumer what fees I'm going to get paid on the various products I am recommending. That way, as a consumer, I can take their advice, but also have an understanding as to how the advisor is being compensated and this information might cause me to ask more questions, etc.

[illinilaw08]

From a consumer side, there would be no good reason to take on low net worth individuals. That is a great point and one I hadn't even thought about. You are spot on that you would never generate enough in commissions to make up for their added compliance costs.

 

From a lawyer side, I don't see why this needs to be all that complicated or expensive to enact. You are basically just changing the duty that a financial adviser has to their client from "suitability" to "fiduciary." Keep the burden on the investor to bring suit, and use FINRA's mediation procedures to try to keep litigation costs down. There would need to be additional disclosures to the client, but I don't really get why this would be any more complicated than that.

 

Note that as I see it, the biggest issue is that the institutional advisers can operate at a greater volume, and don't necessarily need the higher commissions to make do. The smaller guys don't do that level of volume and need the higher commissions to make ends meet. But I'm not entirely sure why that couldn't be resolved through disclosures (ie, using me as an adviser comes with higher fees which replace being charged an hourly rate, and also include more personalized service or whatever), or an opt-out at a certain income level. But maybe I'm oversimplifying this...

[caulfield12]

The rule, rolled out under the Obama Administration, took eight long years to develop. It isn’t perfect: Financial advisors have several work-arounds that may trip up investors even if and when the rule is adopted. Still, the previous administration argued the rule was necessary to protect retirement savers, who, under the current system, may be given conflicted advice by brokers who are incentivized to sell specific financial products that aren’t in their clients’ best interests.

 

The fiduciary rule aims to protect retirement savers from bad advice and keep more money in their pockets—to the tune of $17 billion collectively each year. It also seeks to indirectly change the way the industry structures its products and advisor compensation policies.

 

“I’m optimistic that this rule will significantly reduce fees on retirement investment products,” Massachusetts Senator Elizabeth Warren, a huge proponent of the rule, told MONEY last fall. She noted at the time that while the rule had not even been implemented, companies like Fidelity, Charles Schwab, BlackRock, LPL Financial, and others already had announced that they are slashing fees for various funds.

 

https://www.yahoo.com/news/trump-takes-firs...2--finance.html

 

Next up, Dodd-Frank.

 

Earlier Friday, the Senate used an unusual pre-dawn vote to approve legislation, 52-47, killing a regulation that has required oil and gas companies to disclose payments to the U.S. or foreign governments for commercial development. The House approved the measure this week, and Trump is expected to sign it.

 

 

http://finance.yahoo.com/news/three-ways-p...-163405257.html

 

Edited February 4, 2017 by caulfield12