Week InReview

"What does it tell you about the fiduciary rule that (1) big brokerages are shifting to fee-based accounts even before the rule goes into effect (and even though it may never go into effect), (2) investors seem happy about that, and (3) the brokerages are even happier about it?

'Besides positioning themselves to better compete with the rise of smaller, independent rivals and investors' growing preference for passive investments, brokerage executives found that fees for advice and services could be more lucrative over the longer term compared with commissions. Researcher Morningstar Inc. says fee-based accounts can yield as much as 50% more revenue than commission accounts.'

On the one hand, it does suggest that some criticism of the rule - that it would make retirement advice more expensive - might be correct. On the other hand, people seem happy to pay more for better, unconflicted advice. And perhaps it doesn't matter much one way or the other: If everyone switches to fee-based accounts without the fiduciary rule, then the debates about the fiduciary rule will seem a little pointless."

Matt Levine
Fri Apr 21, 2017
Let's recap
In case you missed it . . .
Fed officials discuss when to start reducing asset holdings; if global economy continues to improve ECB and BOJ may be next (Apr 19)

JPMorgan, Deutsche Bank mull pricing as free research era ends; 'pay as you go' phone-style plans mulled as MiFID II comes in (Apr 18)

Pending regulations could be impetus for creation of market using financial tech (Apr 17)

Sustainable investing is moving to broader investment analysis from the confines of specialty funds  has attracted $23 trillion in assets globally (Apr 17)

Many market participants attribute a perceived loss of liquidity to Dodd-Frank, Basel III, or other regulatory changes. Yet, studies of traditional price measures of liquidity (such as bid-ask spreads) find it difficult to document the loss of liquidity in U.S. corporate bond markets (Apr 17)
The Cyber Cafe
Cybersecurity news every Friday
Humans are (still) the weakest cybersecurity link
Companies are regularly compromised by social engineering schemes, such as phishing and ransomware. Here's what they can do prevent attacks and, if that's too late, mitigate the damage.

Five reasons to worry about the ShadowBrokers hack
WikiLeaks is getting headlines with its CIA documents, but leaks from the ShadowBrokers on possible National Security Agency hacking tools may be far more consequential.

How you can be the smartest cybersecurity expert in the room
Information security is the hottest topic of 2017, with billions of dollars in investments planned. Yet few people have even a basic understanding of the key principles.
World financial system at 'fork in the road'
BOE governor/ FSB chair Carney
(Apr 20) The global financial system is at a "fork in the road," giving policy makers a choice: work together or face fragmentation, Mark Carney - Bank of England governor and chair of the Financial Stability Board - said in a speech in Washington.
  • The financial system is more resilient now than it was pre-crisis, but there are "nascent risks that, if left unchecked, could threaten the progress made, and ultimately undermine the G20's objective for strong, sustainable and balanced growth," Carney said.
  • "These risks include the impact of reform fatigue on implementation momentum, the outcome of Brexit negotiations, the need to complete Basel III, and the importance of finishing the job of ending too big to fail."
  • "On one path, trust and cooperation diminishes, fragmentation hardens, capital flows are disrupted, and trade and innovation are curtailed. If authorities do not have sufficient confidence that their efforts to promote financial stability are being reciprocated elsewhere, then concerns about the risks of openness could intensify."
    • The result would be "sub-optimal for all, with fewer jobs, lower growth and higher domestic risks."
  • Instead, authorities should "take the high road" to benefit from the progress that's already been made to ensure the financial system is robust and can finance the real economy.
    • "With robust standards consistently applied, wholesale financial services could be brought more fully into trade agreements, keeping the global financial system open and resilient, and supporting greater trade, investment and innovation."
  • Internationally agreed frameworks are in place, and in the coming decade G20 members will be "well-positioned to defer to each other's comparable regulatory outcomes, supported by commitments to common minimum standards and open supervisory cooperation."
  • To complete the reform process, regulators must ensure that:
    • Shadow banking is fully transformed into resilient market-based finance,
    • Durable market infrastructure is in place,
    • Too-big-to-fail must end,
    • Emerging vulnerabilities are addressed.
Binge reading disorder
Hand-curated, chosen with love
Trump finds one ex-Goldman banker he doesn't love
Alumni of the Wall Street firm dominate the administration, but it is nonetheless looking at ways to rein in the Financial Stability Board, led by former Goldman Sachs banker Mark Carney, the current Bank of England governor and chair of the FSB.

Cheap ways to prevent executive burnout
Expensive 'holistic' leadership programs do not solve anything.

Here's how to spot a market bubble
A price run-up does not mean a market crash is coming, but there are other indicators that might.