January 23, 2018
What We’re Reading This Week
For better or worse, more people than ever want to talk about Bitcoin. And yes, I continually struggle with how to value it.
I should probably stop asking other people about Bitcoin and price movement – I always regret those conversations immediately after they start. Anyway, I think I found the only evidence I need to know that we are in a Bitcoin bubble.
Recently, a new cryptocurrency has risen in the markets. Dogecoin was founded in 2013 and as the website claims, it is the preferred digital currency of Shiba Inus worldwide. What is a Shiba Inu? Some kind of intellectual tech mogul? Nope, it is a Japanese dog breed.
Dogecoin was established as a parody, to poke fun at online currencies. It also rose 400% last month
“One of the Dogecoin founders told a cryptocurrency news site that the token’s rise makes him worry about market excess.”
What is a fiduciary? Put simply, it’s someone that is bound, by the law, to act in your best interest. Is your financial advisor a fiduciary? What about your broker? What about your financial planner? If those all sort of sound like the same person, then you are like most investors today.
When you work with a financial professional, are they helping you or are they selling something to you? Sales isn’t inherently bad. When you buy a car, you know the person you’re working with makes more money when you buy that car and you act accordingly. The etiquette in that situation is mostly, pretty clear. Things are less clear in the world of financial advice. Most clients think their broker is supposed to give them advice that helps them, and most brokers think they are supposed to sell things to the client. Also, many brokers take advantage of that knowledge gap. Knowing the person across the table from you is a salesman adds a sense of caveat emptor that doesn’t always translate to financial services.
The Department of Labor Fiduciary rule muddied the waters even further by “forcing” brokers to act as fiduciaries. Well, at least they have to act as fiduciaries when they are talking about retirement accounts…but not brokerage accounts. Also, not if they are operating under a “best interest contract exemption.” Essentially, if you can guess Rumpelstiltskin’s name, he has to act in your best interest.
Enter the SEC. Despite the current administration’s threat to undo the DOL rule, the SEC has renewed its work on its own Fiduciary rule, which would apply to all accounts, including brokerage.
The SEC is walking a razor’s edge: give consumers what they want and face the industry’s opposition or give the industry what it wants and face consumer opposition. Unfortunately, the industry has deeper pockets and will likely get its way.
The new rule, which could go into effect at the end of the year, could require professionals handling non-retirement assets to adhere to the same standards of conduct as those handling IRA dollars. Longtime readers of this blog will know I have very little respect for even the current standards of conduct. There are too many loopholes and work-arounds.
Personally, I am opposed to any type of “fiduciary” standard for brokers. I think the terms are mutually exclusive. You can’t be a salesperson with sales incentives and be a fiduciary. That doesn’t mean there isn’t a place for sales in financial services. As long as consumers understand when they are talking to a salesperson and when they are talking to a fiduciary, I’m happy.
That being said, the current SEC rule could ban the term “financial advisor” from being applied to brokers unless they accept a fiduciary contract with their clients.
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