PrefBlog

Some interesting, but not particularly surprising, commentary on the effects of the fiduciary rule in the States:

The brokerage business fiercely fought the new retirement advice rule. But so far for Wall Street, it has been a gift.

The rule requires brokers to act in the best interests of retirement savers, rather than sell products that are merely suitable but could make brokers more money. Financial firms decried the restriction, which began to take effect in June, as limiting consumer choice while raising their compliance costs and potential liability.

But adherence is proving a positive. Firms are pushing customers toward accounts that charge an annual fee on their assets, rather than commissions which can violate the rule, and such fee-based accounts have long been more lucrative for the industry. In earnings calls, executives are citing the Department of Labor rule, known varyingly as the DOL or fiduciary rule, as a boon.

Dudley had some good observations on income inequality:

In my view, two main factors are responsible for this pattern of differential wage growth and the resulting increase in wage inequality. First, advances in technology have dramatically changed the nature of work, increasing the skill requirements for many jobs while displacing others. Second, the pace of globalization has accelerated in recent decades, with increased cross-border trade, investment, immigration, and the emergence of global supply chains. Together, these economic forces have contributed to significant job losses in certain sectors, most notably manufacturing. The resulting decline in demand for middle- and lower-skilled workers has resulted in fewer jobs and has depressed wages for many in those industries. Other, less important factors behind the rise in inequality include the decline in private sector labor unions and the falling real value of the minimum wage.

At the same time, technological change and globalization have created jobs in areas such as engineering and software development. Demand has been particularly high for knowledge workers, resulting in strong wage growth in certain sectors. All told, the forces of technological change and globalization have contributed to wage inequality by pushing up wages for those toward the top, and stifling wage growth for workers toward the middle and bottom of the wage distribution. As I have said in previous remarks, we need to do a better job of helping those hurt by globalization.

I call his remarks good, of course, because I agree with them. One thing that might have been mentioned is inefficiency in the creative destruction process. Technology and globalization are bringing down the price of various outputs; in the past, we have seen that these cheaper outputs become inputs to other processes in new sectors, but it takes a while.

This entry was posted on Monday, August 14th, 2017 at 11:04 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.