Archive for May 20th, 2019

Fiduciary duty and the market for financial advice

May 20, 2019

Interesting paper by Vivek Bhattacharya, Gaston Illanes and Manisha Padi:

Recent regulatory debate in the financial advice industry has focused on expanding fiduciary duties to broker-dealers. Proponents of this reform argue that it would improve the advice given to clients and limit losses from agency problems, while detractors counter that such regulation would increase compliance costs without directly improving consumer outcomes. This paper evaluates these claims empirically, using a transactions-level dataset for annuity sales from a major financial services provider and exploiting state-level variation in common law fiduciary duty.

We find that imposing fiduciary duty on broker-dealers shifts the set of products they sell to consumers, away from variable annuities and towards fixed indexed annuities. Within variable annuities, fiduciary duty induces a shift towards lower-fee, higher-return annuities with a wider array of investment options.

We develop a model that leverages the distributional changes in products sold to test the mechanism by which fiduciary duty operates. We find evidence that fiduciary duty does not solely increase the cost of doing business but that it has the intended effect of directly impacting financial advice.

A really important paper and finding given the crisis in practices of financial services…

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Venezuela crisis leading to food shortages in Cuba…

May 20, 2019

One usually sees how financial crisis in one country moves to other.

This article shows other kinds if interlinkages working. Venezuela’s economic crisis is leading to a food crisis in Cuba:

At first, flour was missing. So by the end of 2018, buying bread or cookies was hugely difficult. Around Christmas, red flags were waving about continuing shortages. The price of pork, the symbolic Dow Jones of Cuba’s domestic economy, skyrocketed, and by last month it had reached 70 Cuban pesos (CUP) per pound (€2.30; $2.60), two days worth of wages for the average Cuban professional.

Chicken and typical dishes such as Cuban picadillo — made with ground meat — hamburgers and hot dogs all rose in price. Hot dogs have been a regular meal for hundreds of thousands of families for years, since at a little more than one euro for a package of 10 hot dogs, they offered the best value for money.

The government has attributed the lack of food to problems with international providers, the poor state of the milling industry, which processes imported wheat, and has blamed hoarders for making it harder for everyone to have enough goods. It avoids using the word “crisis” and has also censored the national media’s use of the term “Special Period,” the euphemism under which the economic disaster that followed disintegration of the socialist model in the 1990s was known.

Fridges remain empty as the ideological discourse has intensified. Incendiary rhetoric seeks to blame the shortages on the US embargo, even as economists and analysts agree that the real cause is Venezuela, which has cut back significantly on its oil shipments to the island.

Havana used to resell a portion of that oil on the international market for cash, which meant a lifeline for an economy with little productivity and an excessive state apparatus that is inefficient and expensive to maintain.

Hmm…

‘Sholay’ to ‘Darbar’: This man is responsible for shining a light on four generations of actors

May 20, 2019

Lot goes behind making the movies and development of stars.

Rajendran (72) is one those several people behind movie making. He flashes light at the actors and holds till directors say cut.

Really nice profile of the man who has seen 4 generations of actors.

Evolution or revolution: What next in macroeconomics?

May 20, 2019

Olivier Blanchard and Lawrence Summers have edited a book: Evolution or Revolution?  Rethinking Macroeconomic Policy after the Great Recession.

They share the afterword on voxeu:

 

History of India’s NBFCs: 70 Years Of Potholes And Repair Work

May 20, 2019

New piece in Bloomberg Quint.

I explore how NBFCs and its regulation have evolved over the years in India.

It is useful to get opportunities with BQ to write on various aspects of Indian financial history. One learns a lot writing these pieces.

The pieces written so far:

Earlier pieces for Mint on Sunday (which was suddenly stopped):

Hope many more to come…


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