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Just hearing the podcast on freakonomics radio where Bogle, Fama and French were talking about passive investing....Great podcast for beginning investors (like me) to listen. Great review in the importance of costs, efficient market theory and active vs. passive.
However, what was very peculiar during the end of the interview, they spoke with the now communications director of the White House where he explained his opinion regarding passive investing and the fiduciary rule. Transcription as follows:
DUBNER: You called the fiduciary rule, “a case study in government overreach, a clear example of how faulty regulation can have severe unintended consequences.” You also promised to help President Trump repeal it. What are some of those unintended consequences of a rule to try to change the behavior of the people who are paid to manage other people’s retirement money?
SCARAMUCCI: ...What it’s doing is it’s actually limiting the choices for the end user or the end investor. Because if you read the entire rule, which I’ve read, it’s a governmental decision to allocate capital into index funds and E.T.F. funds that the government is deeming those things as being more efficient. They’re more effective in terms of their lower cost analysis and, for the time being, the government is actually right.
If you look at the last 5 or 10 years, those funds have performed better and charge less fees than, let’s say, a hedge fund or a private equity firm. But the problem with that analysis is that you’re not taking a 120-year, modern, economic historical analysis of business cycles and stock market trends. You’re really only looking at the last 10 years. The buffet table of investment opportunities for the average user — let’s say, my mom and dad, which I’m super concerned about — gets curtailed. I’m just going to sell you the things that the government wants me to sell you.
What will end up happening is everybody will be overloaded in E.T.F.s, they’ll be overloaded in indexes. And when the market crashes — because they will have eliminated many of the financial advisers. You’ll lose 60 to 70,000 financial services jobs as a direct result of that rule. It’s a jobs killer. But what it also does is it fails to recognize the full economic value of a financial adviser. The economic value of a financial adviser is not just the return and the net return, net of the fees, but it’s also the psychological effect and the coaching that that financial adviser provides that family.
The rule is bogus, Stephen, and the rule needs to be repealed. The people that really understand the rule know that. By the way, I love my clients, as most financial advisers do. I’m not trying to rip off my clients. I’m not trying to do something that’s dishonest. I’m just trying to increase, continually, their options in terms of what they can invest in.
Can a repeal of the fiduciary rule have any direct effect on us? Will it really limit our market options? Crazy how its all tied up to preserving jobs and not killing the financial sector.
However, what was very peculiar during the end of the interview, they spoke with the now communications director of the White House where he explained his opinion regarding passive investing and the fiduciary rule. Transcription as follows:
DUBNER: You called the fiduciary rule, “a case study in government overreach, a clear example of how faulty regulation can have severe unintended consequences.” You also promised to help President Trump repeal it. What are some of those unintended consequences of a rule to try to change the behavior of the people who are paid to manage other people’s retirement money?
SCARAMUCCI: ...What it’s doing is it’s actually limiting the choices for the end user or the end investor. Because if you read the entire rule, which I’ve read, it’s a governmental decision to allocate capital into index funds and E.T.F. funds that the government is deeming those things as being more efficient. They’re more effective in terms of their lower cost analysis and, for the time being, the government is actually right.
If you look at the last 5 or 10 years, those funds have performed better and charge less fees than, let’s say, a hedge fund or a private equity firm. But the problem with that analysis is that you’re not taking a 120-year, modern, economic historical analysis of business cycles and stock market trends. You’re really only looking at the last 10 years. The buffet table of investment opportunities for the average user — let’s say, my mom and dad, which I’m super concerned about — gets curtailed. I’m just going to sell you the things that the government wants me to sell you.
What will end up happening is everybody will be overloaded in E.T.F.s, they’ll be overloaded in indexes. And when the market crashes — because they will have eliminated many of the financial advisers. You’ll lose 60 to 70,000 financial services jobs as a direct result of that rule. It’s a jobs killer. But what it also does is it fails to recognize the full economic value of a financial adviser. The economic value of a financial adviser is not just the return and the net return, net of the fees, but it’s also the psychological effect and the coaching that that financial adviser provides that family.
The rule is bogus, Stephen, and the rule needs to be repealed. The people that really understand the rule know that. By the way, I love my clients, as most financial advisers do. I’m not trying to rip off my clients. I’m not trying to do something that’s dishonest. I’m just trying to increase, continually, their options in terms of what they can invest in.
Can a repeal of the fiduciary rule have any direct effect on us? Will it really limit our market options? Crazy how its all tied up to preserving jobs and not killing the financial sector.
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