Wednesday, February 25, 2015

Quick Post: Financial Advice

Just a quick hit today, from Matt Yglesias, discussing whether investment advisors should be regulated to give helpful advice:
This of course raises the question of what it is that brokers who serve the middle class — people at mass market brokerages who pick up the phone when you dial the number on your company's 401(k) site — are doing to make money. The answer is that they are earning a living marketing financial products that are profitable to their employer and disguising the marketing as advice.
I think that this is entirely correct.  The idea that this sort of regulation could eliminate or reduce the number of financial advisors is not surprising.  It'd replace them with salespeople, which would limit the amount of potential confusion. 

I also think that the quote Matt includes at the top of his post is telling in a very different dimension:
"While concerns about improper actions by investment advisors should certainly be addressed, an overly broad proposal could price professional financial advice beyond the reach of many modest income families."
The theory behind things like the 401(k) is that people will be able to make better investment decisions than, for example, the state.  Thus private savings would work better than, for example, social security.  However, if the advice needed to be successful at saving using financial instruments is outside of the reach of the middle class (when regulated so that advisors need to act in the best interests of their clients) then it rather undermines this entire thesis. 

It's been a quiet story, but the implications for policy are enormous. 

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