The Fiduciary Rule

Recent regulatory changes abroad and here in the U.S. will likely prove to be a boon for the ETF market. The European Union’s MiFID II (Markets in Financial Instrument’s Directive) and the U.S.’s adopted Fiduciary Standard both suggest disappointing outcomes for actively managed mutual funds, mostly due to costs. Don’t worry if you haven’t seen MiFID I yet, MiFID II is still enjoyable.

Essentially, the EU rule will force additional transparency in commission-based advisory models. Likewise, the Fiduciary Rule forces financial advisors to act in their clients’ best interest. The difficult part of that directive is, what constitutes best interest?

The idea is that by being transparent, investors will realize that they are paying too much and move their money to an ETF. Or, that financial advisors will view investing in ETFs as giving enough lip service to fiduciary obligations that they won’t be liable for bad advice. Transparency does not equate to acting in one’s best interest. Sure, it’s probably important, but it’s also probably not the most important.

Giving bad advice and not charging too much for bad advice are not the same thing. If I take my car to a mechanic because my transmission is failing and he works on my air conditioning, he doesn’t get a pass because he didn’t charge me as much as he wanted to.

Google Buys Apple

A few days ago, the Dow Jones Newswire published some fake news that Google would be buying Apple. The result was a small (read, 1%) run up on Apple stock that quickly faded, as well as a retraction and apology from Dow Jones. They had a technical error.

I don’t really like any part of this. Some kind of computer over at Dow Jones has the ability to post news to the public feed and some computers elsewhere have the ability to purchase stocks based on that news. The second part is especially troubling. One of the posted headlines read “Google to buy Apple for $9 billion.” This is problematic because Apple’s market cap is over $800 billion. Whatever computer thought a $9 billion sale equated to an Apple buy should probably be fired, or decommissioned, or at least given a stern talking to.

Amazon as Lender

I guess Amazon gives loans? The online retailer has been making loans to merchants since 2011 and originated $1 billion in loans the past 12 months.

This has led some to speculate about the firm’s longer term banking aspirations. I guess the declining growth of commercial banks over the years is leading regulators to consider nontraditional options.

Certainly, there has been a small amount of disruption by tech companies like Lending Tree in traditional financial markets, but a big part of declining retail banks is too much regulation. I can’t help but wonder how “too big to fail” could play into this. As a bank, Amazon is not too big to fail. But as an online retailer, they could be worth saving. I’m kidding, of course, and my official view is that if you have so many regulations that banks decide to close after decades of operation, you don’t have a friendly enough regulatory environment to entice non-banks to join your ranks.

Elsewhere,

Why don’t retirees wait until 70 for social security?,

Domino’s makes senior secured debt new again,

Everyone benefits under Trump’s Tax Reform,

Pay attention to this!,

Uber’s reckoning,

How to receive feedback,

Van driver stopped for carrying excessive amount of cheese,

A decade of stock charts,

and The failed 401(k) experiment.

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