Right, it doesn't necessarily follow, but historically, that tends to be the effect.
Disagree - see further below.
Right, putting a madman in charge and having him implement draconian restrictions on all of society isn't idea. So I agree, we need principles that empirically promote the best society for the largest population.
I question your method of obtaining knowledge - see further below.
Before the creation of the SEC, the market didn't establish its own rules. It had every chance to do so for decades, but it didn't.
There was an issue with investment advisers being non-fiduciaries with respect to retirement matters pre 1934? The market (common law) has rules against undue influence, unconscionability, misleading and deceptive conduct, and so on. Also, if it was an unresolved issue since 1934, then does that imply it took the Government near 83 years to solve it (assuming the current legislation is a solution - it is easily arguable that making financial advisers fiduciaries in this situation is using a sledge hammer to break a walnut).
Yet even with rules intended to set minimum standards of behaviour, capitalism strained itself against those rules. What does that say of the market's ability to regulate itself ethically?
Even restricted-capitalism (we do NOT have capitalism in its 'purest' form at the moment) still 'strains' itself against those rules. What does this simply tell you about human beings?
I see what you're saying, but rules regarding financial advice don't simply affect market behaviour, they affect the financial well-being of ~90% of the population. If financial advisors are allowed to fleece your average Joe, you can be sure that their profits aren't going to benefit the needy. They're lining the pockets of millionaires and billionaires.
Will talk about this with the below.
Essentially, we have a philosophical and practical question: what epistemological method should we use to gain actionable knowledge about 'the market', 'the economy', etc. You contest that we can resort to history as a method of obtaining actionable knowledge about the market. Here, I disagree. For the most part, The Second Chapter of
Mises' Human Action is very relevant for this debate. The debate is also extremely practical (since I know you care about practicality insofar as it relates to real people's actual well-being). It is practical because IF looking at history is a bad method of obtaining knowledge about the market, then IF we apply that bad knowledge to the real world, we should expect a not-so-good outcome; the opposite is also true.
Essentially, the reason I disagree with using History as a method of gaining knowledge about the market is because, assuming we overcome all the difficulties with reference to the need to read primary sources, etc etc, fundamentally you have a complex non-linear system. There are hundreds of thousands of variables affecting the market. You are ingesting all these hundreds of thousands of variables (probably through secondary sources (no offence)), and coming to a conclusion. The same hundreds of thousands of variables could be consumed by another person, and a different conclusion would be reached. There is simply no shortage of conclusions the mind will superimpose onto a scenario like this. Being a reasonably intelligent person, you are
always going to have an opinion — so will other people, and there will always be differences. Case in point, I disagree with you with respect to the empirical evidence (even if you say we haven't looked at the same evidence, ultimately you'll accept the point that some people simply disagree with your point of view on the same evidence).
Just because you call something 'empirical' does not necessarily follow that that is a good method of obtaining knowledge. Empiricism insofar as it relates to science, tries to isolate single variables, and has a body of literature that is regarded as 'correct' from which, any hypotheses that contradict those accepted theories are met with heavy skepticism (example, if a hypothesis contradict Newton's Laws, it is probably going to be met with skepticism). No such body of literature really exists with respect to economics: economists disagree over simple things such as what a media of exchange is. Furthermore, as I said, analyzing a system of human interactions is analyzing a complex non-linear system of which you know nothing about the actual individual actors of that actual system, nor can you even identify the variables that exist in that system, their strength, and their changing nature. It is simply not a good method of obtaining actionable knowledge, and although I myself am guilty from time to time in referring to historical events to support my own view, ultimately, I think at best they can only be used to support a view, that view being something which must be reasoned
a priori in the first instance. You simply cannot draw any conclusions from history as first principle with respect to economic systems.
To the extent that interests are misaligned with respect to investment advisers and prospective retirees. The way I see the situation: prospective retirees are deciding to go to financial advisers because they think doing so will satisfy their wants: to get good retirement/investment advice. Your contention is that they are actually getting bad retirement/investment advice, caused by misaligned interests, and that therefore this constitutes some form of market failure? Let me ask some questions since you know the industry quite a bit (as you work in it):
- Do consumers think that the financial adviser probably prioritises their companies interest over the clients interests?
- What are consumers views on financial advisers generally? (Eg people hate lawyers and love doctors)
- Is there a competitive advantage to being a 'good' financial adviser?
- To the extent that investment firms now lose revenue (presumably), what consequences does this have do you think?
Ultimately I think what we have is an adverse selection problem: consumers can't differentiate between good and bad investment advisers, and so discount the price of all financial advisers, causing the 'good' ones to exit (not enter) the market; in other words, this is an information asymmetry problem and the purported solution is that by rendering the adviser a fiduciary, the information asymmetry is resolved by allowing the consumer to inherit by proxy the advisers information about what is truly best for the consumer (an alignment of interests).
Prima facie the solution seems fine, I just wonder what unintended consequences it might have.
Also, as to the effect of the DOJ ruling, I'm curious. I would imagine you would only allowed to be 'bonused' if the client has informed consent of how you are being compensated; the absence of informed consent would, even if the bonus regime did not harm the consumer, still be a breach of ones' fiduciary duty (unless they are taking a non-legal meaning of the word 'fiduciary' yet still using that word...). I read earlier that you said now you can only be bonused on metrics that don't actively hurt the consumer. Is that what the DOJ ruling explicitly says? How do you guys determine what metrics don't actively hurt the consumer, what are some examples?
