Financial regulators exist to stop anyone ever losing any money and to protect us from ourselves, right?
Many people seem to think so.
As the GameStop drama reached its zenith, a clamour went up.
“Where are the regulators? Something must be done!”
My view was closer to that of the president of the Minneapolis Federal Reserve:
“If one group of speculators wants to have a battle of wills with another group of speculators over an individual stock, God bless them… If they make money, fine. And if they lose money, that’s on them.”
Neel Kashkari, on Bloomberg via Twitter
Of course, seeing sophisticates like Chamath Palihapitiya, Mark Cuban, and Jordan Belfont (the real Wolf of Wall Street) cheering on retail punters – many of whom clearly had no exit plan – made me uneasy.
Those big guns can handle themselves. So too can the sophisticated sliver of Redditors who first proposed GameStop as a target.
But the masses from Robinhood were already looking at unsustainable profits by the time GameStop had all our attention.
What they needed to do was to get out.
As I wrote:
As for those long GameStop who say they’ll hold at any price – they’re probably already dead, in trading terms. They just don’t know it yet.
Praying your stock turns into a Ponzi scheme – with ever more new money coming in to keep it elevated – isn’t trading, let alone investing.
Sturm und damn
As I write GameStop is priced at $61, having peaked at $483 just a week ago.
You’d hope new traders are learning lessons about risk management, position sizing, taking profits, and market structure.
But most will more likely cheer on this Tweet from entertaining stock gambler Dave Portnoy:
I have officially sold all my meme stocks. I lost 700k ish. Vlad and company stole it from me and should be in jail. pic.twitter.com/qXP1N1UFil
— Dave Portnoy (@stoolpresidente) February 2, 2021
Robinhood and other brokers restricting GameStop at the height of the frenzy – for operational reasons, such as capital requirements – probably did help burst the bubble.
But the price was always going to fall from the artificial levels achieved on the back of shorts caught off-guard.
Besides, if you want to play this game, you need to know things happen – from margin calls and getting stopped out to your platform bailing on you.
There’s a scene in The Big Short where one of the managers realizes the bank facilitating his wager against the US mortgage market could go bust.
His apocalyptic bet could be right – but the bank might not be around to pay up.
That’s the level of paranoia you need when markets are roiling on your trades.
Why regulators?
You might think I’ve just made the case for more intervention by regulators.
Self-proclaimed dumb1 money pitted against professionals in fast markets with platforms taking away the ball mid-game…it’s hardly sober investing for your old age.
But remember why we can even have this discussion.
For decades, direct investing was for the rich. They knew the game and could afford to play.
Perhaps the purest manifestation were the wealthy Lloyds names who profited in the London insurance market for centuries – at the risk of unlimited personal liability.
But even with investing in shares, fees were horrendous, information unevenly distributed, and what we’d now call insider trading was rife.
Ordinary people could eventually pool their money into active funds. But returns were often poor, and the charges astronomical. (Think 5% upfront just to get a fund to take your money, and it didn’t get much better after that.)
Today is very different.
Information is abundant. Brokers like Freetrade charge nothing for trades. Anyone who passes an identity check can deal in all kinds of securities. Cheap index funds enable 99% of people to get the exposure they need.
Of course now that people have access to far more financial products and securities, there’s more scope for things to go wrong, too.
And some people still believe the markets are rigged against them, despite this democratization of finance.
Hence the Bat-signals regularly sent out to the regulators. With every mishap comes a call for more intervention to protect poor investors.
I say be you’re careful what you wish for.
Our hard won parity with richer or more sophisticated investors could be lost to overzealous regulation.
Banking crisis
Many Reddit traders said they wanted to take revenge on Wall Street. And Twitter is full of claims the market is ‘rigged’.
It’s all a great cover for overly nanny-ish regulators to dial back many of the freedoms these new traders prize.
Luckily, regulators seem to be more sensible so far.
A few politicians have made noises. But from what I’ve heard from the regulators, their focus is on ensuring the system holds up and remains well-capitalized.
Most especially they want to avoid a cascade, where one platform borks and its partners and counter-parties fall like dominoes.
Still, considering all the red tape introduced after 2008 – such as the Dodd-Frank Act in the US – we might ask why there still always this call for regulators?
One reason must be the lingering lack of faith that resulted from that crisis.
It’s hard to remember now just how revered bankers had become before the crash (they were seen as near-infallible) and how often we were told things were made more resilient by all the complex financial plumbing.
Despite (or perhaps, it was implied, even because of) so-called light-touch regulation.
Oops!
That claim didn’t age well.
Payment Protection racket
Many who say they want justice cite the lack of repercussions – especially jail time – for the bankers at the heart of the crash as their casus belli.
Countless more bankers walked away with big bonuses than went to jail.
But one big difference – in the UK – was the billions forced out of the banks as a result of the (mostly unrelated) Payment Protection Insurance scandal.
The total bill for PPI claims against mis-selling came to over £53bn.
A staggering sum. I personally think it was excessive.
No doubt many customers hadn’t bothered to read up on what the PPI they were paying for did.
But I don’t believe banks genuinely hoodwinked customers out of £53bn, or anything like it.
When I was looking to buy a flat in the early 2000s, almost every article I read about mortgages mentioned PPI – and told me I probably didn’t need it. If I was cajoled into getting a PPI-bolt-on, I would have gone elsewhere.
But many buyers just signed paperwork blindly. They didn’t do any homework.
Anyway, after the regulators ruled the banks had mis-sold PPI, early estimates of the provisions quickly snowballed.
Shady companies sprang up, cold-calling us into making a claim.
In the end people who had never heard of PPI were getting compensation for forgotten credit cards they’d been perfectly happy with at the time.
I know it’s hard to have sympathy for big banks who cynically tacked unneeded costs onto their dockets.
But if we don’t expect people to try to know what they’re buying when they borrow four-times their annual salaries or more, when should we?
It’s a very slippery slope.
Banned substance
Anyway, it feels to me like the PPI scandal infused the UK consumer of financial products with a compensation culture mindset.
Barely a week goes by now without something labelled ‘the next PPI’.
Indeed, avoiding ‘the next PPI’ has probably already helped restrict what products we have today.
- The Order Book for Retail Bonds launched with great fanfare a decade ago as a way for ordinary investors to buy higher-yielding company bonds directly. It’s now moribund. Mostly that’s because cheaper funding became available elsewhere. But I suspect corporations also decided they could do without the hassle of retail investors.
- Riskier mini bonds have effectively been regulated away. You might say good riddance after some blow-ups. But I enjoyed my mini bond portfolio – the higher interest mostly, but also exploring the asset class.
- A host of factors killed off peer-to-peer investing as originally billed. I think regulation and fear of The Next PPI was in the mix. The big platforms Zopa and Ratesetter had their ups and downs, but overall they allowed enthusiastic users to earn higher interest rates for years. They’re just a shadow of their old selves. Even some readers of this website called them ‘the next PPI’.
- Whenever a bank threatens to do something with its preference shares, campaigners cite poor pensioners subsisting in blissful ignorance on the dividends. Yet some of these people cried foul at restrictions on retail investors buying new kinds of hybrid bank debt. You live by the sword…
That list is hardly complete, incidentally.
Regulators don’t seem exactly enamored with Innovative Finance ISAs, for instance, which may be one reason they’ve been slow to take off.
And while you’re free to gamble away your life savings at the bookies or online, the checks and restrictions around sticking £50 into a crowdfunded start-up are more rigorous.
Recently the FCA banned the sale of crypto-derivatives, too.
Cry freedom
For sure people don’t require any of those to achieve their financial goals.
But I used some of them – and I certainly liked having the choice.
I don’t dispute a need for some regulation, of course. I can also see that regulators have a very difficult job.
Equity crowdfunding – to take one of my vices – is beset with inflated claims, inadequate markets, scant due diligence, illiquidity, and failure. That’s despite active regulation. You shudder to think of the losses if literally anyone was allowed to say and sell anything to anyone.
But there’s always a danger regulators will go too far. And the cries that go up whenever someone loses some money in some ill-fated venture these days makes it more likely.
For example, there was an episode I remember where it seemed like investment trusts might be accidentally regulated out of retail portfolios.
I even dimly recall a couple of decades ago that dealing in individual shares might have ended up restricted to professionals or other financially sophisticated persons.
Luckily nothing came of it. But don’t be complacent that you’ll always be able to invest in the future like you can currently.
Consider pension freedoms, for instance.
Most people hanging around Monevator are fans of being put in control of their own pension money, obviously.
But we’ve already heard warnings that some people spend their pots too quickly, or that you should have to jump through more hoops to get access to your cash. And that’s in a mostly rising market. Imagine how a big bear market could underwrite that case.
Maybe if you’re forced to convert your index trackers into a derisory annuity when you retire, you’ll sympathize with those of us who don’t like being told we can’t do something because someone else was stupid.
The only way is up
Perhaps the craziest compensation call I’ve heard was that investors in Neil Woodford’s funds should be compensated for the gains they would have made if they’d invested in other, higher-returning products.
The giant can of worms such a precedent would set hardly needs explaining. Yet a few otherwise sensible people nodded along in agreement.
Besides the impracticality and unintended consequences of such a move, it would also cement the growing sense that investing should, apparently, only involve rewards and no risk.
What could you invest in if such a view won the day?
An FSCS protected bank account paying less than 1%, and that’s your lot.
Self-preservation
Regulators do an important job. We don’t want lawless markets.
Regulation around stuff that really kills people – such as debt – is especially important.
I’m pleased regulators will soon regulate ‘Buy Now Pay Later’ firms, too.
But if you’re someone who calls for regulators to swoop down whenever trading gets frothy, on the grounds that people could lose money, please think again.
It took a long time to win the financial independence and options that we enjoy today.
We don’t want our financial lives shepherded back into the hands of advisors, simply due to excessive regulation.
- The word WallStreetsBets uses is “retarded”. [↩]
I agree completely.
However (sorry, the borderline Aspergers part of my brain just can’t help itself!) Dodd-Frank has been mostly repealed. One of the first things Trump did in his presidency. Because: all those honest Christian hardworking forgotten people in West Virginia whom Trump had been championing, y’know, the white working class, just kept on pestering him, c’mon Mr President, all that red tape around securities-based swaps is just killing us, depriving our families of opportunities. Please, Mr President, you have to stand up for the little guy!
@hosimpson — From what I’ve heard from US market participants who know better than me, it’s still largely intact. As I understand it one of the reasons why, for instance, brokers had to suspend trading in GME last week was because of margin requirements / capital requirements made/demanded by their clearing houses, for example, and also because they were running out of capital (because trades don’t settle for two days, as you know) — all to some extent emanating from (or to meet minimums set by) Dodd-Frank regulation.
I am definitely not even an amateur Dodd-Frank watcher, but at the least there are two narratives out there.
Here’s Brookings supporting the points made (mostly by others, that I’m repeating) above:
https://www.brookings.edu/research/no-dodd-frank-was-neither-repealed-nor-gutted-heres-what-really-happened/
That piece is from May 2018, so stuff could have happened afterwards, of course.
Probably best this thread doesn’t descend into a Dodd-Frank-off, as I am not well-placed to debate it; I’m going on what I’m told here mostly. Readers can Google about for themselves.
(Cheers for commenting. You seem a bit more active again these days! 🙂 )
What’s the difference, if anything, between a speculator and an investor? And should they be offered different protections?
Discussions about regulation are rather like discussions about taxes.
Regulations that affect other people are like taxes that other people pay. Good.
Regulations that affect me are like taxes that I pay. Bad.
The debate might get wrapped up in some pretty words but it never really gets beyond that.
Expect the upcoming budget to be a good case in point.
You’re absolutely right to say that the consumer protection portion of the DF Wall Street Reform & Consumer Protection Act is still there.
My bad. I assumed by referring to DF when discussing the banking crisis and the cascade (that in 2008 was exacerbated by CDSs) you were referring to the DF Wall Street Reform provisions that dealt with derivatives trading by deposit-taking institutions. That part, which Jamie Dimon et al called red tape, is dead.
In retrospect, since the entire article is about the regulation relevant to retail investors, you were probably talking about the consumer protection aspect of the DF 🙂
@Neverland – I would add to your analogy, taxes you pay are good, taxes I pay are bad. Until I injure myself crossing the road and then expect the free NHS that those taxes paid for to bail me out and the local council to implement some sort of expensive road change to stop it happening again.
For me, this is why the difference between what I would call speculators and investors is perhaps important. Investors should be protected against becoming inadvertent speculators. Investors should also be protected against what I would call market manipulation. Speculators on the other hand are really gambling. Betting on an outcome. The question is whether the match itself should be, and ever has been, fair. Are all speculators innocent punters? Or are they more like the mafia, and the match has always been rigged.
Some of this is also about ensuring no boom and bust type activity (though super efficient markets that just slowly trend upwards is not very exciting). If the aftermath could result in wider social outcomes or bailouts, regulation makes more sense. I think this is the balance that is a thin line that needs treading.
@Richard — I probably won’t comment much more, as this article got incredibly long and if I didn’t make my point in it then I won’t in the comments. 😉
However I would caution that any particular regulation invariably makes some sense at the time, to some (often narrow) purpose. The cumulative effect can be to squeeze out innovation and flexibility, however.
Regarding the appeal of taxes and/or regulation depending on whether it affects oneself, it’s a fair point.
But in some ways this doesn’t really matter for me personally; I can self-certify as a sophisticated investor or a high net-worth for most purposes now. It’s more something at the core of what I believe. I’d rather people were given options and some blew-up than that regulation funneled retail investors into a few dull products or tied our hands in other ways, even if a few silly people were saved from their own actions.
Regulation (and enforcement) that roots out fraud or crooks is another matter entirely. Yet this so often seems half-arsed or incredibly slow-moving, as anyone who regularly listens to BBC Radio 4’s MoneyBox can attest. I’d put more funds in that direction, if anything.
Something I didn’t cover in the piece also was the way that the FSCS is funded by good companies to pay for the failures of bad or bent ones. This is becoming a significant burden on the industry, and while I don’t doubt it has pragmatic attractions it seems a strange incentive to penalize the good players!
As an opinion piece, that reads like a long moan.
I’m the person whose comment you deleted on your last post. My one line comment stated that in a football supporters forum that I frequent , the Gamestop thing was viewed as absolutely hilarious. Not sure why anyone would want to delete that, unless someone is so far up themself that nothing other than agreeable, technically dissective comments are allowed.
In regards to your comments about PPI, I think it is blindingly obvious to any reasonably intelligent person that the behavour of the banks on the run up to the 2007/2008 collapse was morally bankrupt. I do remember that time, and quite specifically what was dished out to prospective mortgage customers was the very heavy hints that if they didn’t take out PPI, then the mortgage would be off the table, or only available at a higher interest rate.
In my opinion, it is absolutely right that the banks since then have been screwed to the floor over PPI.
Broadly, your post sneers at anyone who isn’t as financially literate as you.
@Andrew — I do sometimes delete one line posts because I don’t want Monevator comment threads to become a long line of quips. You may disagree with this tendency, but personally I think we have one of the best discussion forums after comments in this space, to the credit of most of our vocal readers.
(Obviously you’ll have to take my word for it, but I deleted a two-word “Great Post” on my co-blogger’s article on Tuesday.)
Your comment here on the other hand is broadly fair enough, in the sense that it’s well-articulated and substantive. Naturally I don’t agree, though there’s clearly a moaning element. It’s true I’m fed up with cries of “compensation” from every corner whenever anyone does anything dumb.
Financially literacy isn’t universal but it’s not an impossible thing to achieve. The basics can famously be written on an index card:
https://www.forbes.com/sites/zackfriedman/2017/03/09/9-money-rules-index-card/
Many people basically can’t be bothered. I don’t know how much experience you have of this; having blogged on personal finance and investing for 12 years amongs other things — and fielding over 45,000 comments on this blog alone, let alone emails et cetera — I have a fair amount.
Obviously my PPI view is a minority one. It’s very easy to call a bank “morally bankrupt”, but it’s also hyperbolic. Are they morally bankrupt for charging us nothing for current accounts? That’s part of the chain that leads to nonsense like PPI.
As my links in the post to older articles show, I was no fan of the banking class pre-2008. Nevertheless, I think even the regulators would have balked at a £53bn bill if they’d thought it would get to anywhere near that sum when they initially ruled on PPI.
If anyone, like me, struggled to understand why Robinhood had to suspend trading in GME and certain other “hot” shares last week, the recent Planet Money podcast gave a pretty good idiot’s explanation: https://www.npr.org/2021/02/04/964172276/diamond-hands-to-the-moon-reddits-market-movers
@TI – I think that is the difference. You are happy to take on the risks as you feel you understand them and can benefit from them. But you are seriously sophisticated. I also wonder if you had hedged Gamestop and the prospect of compo or regulation came up you would say no?
It stifles innovation, but I challenge how many of the innovations that have involved high risk speculation actually been beneficial? It seems to me it usually ends in tears and bailouts. The innovations that seem to have really changed things are pretty steady and boring, index trackers, fee free trading, online brokers. Maybe here, the hedge funds should be more tightly regulated in what they can do rather than the retail investor…..
I do see this ending in a DB transfer style regulation – you can either invest in the safe stuff or else get ‘certified’ to invest in the rest of the stuff. Bit like you do for innovative ISAs. But don’t come asking for compo when things go wrong.
The point of PPI compensation was to provide recourse to those who were miss-sold it. Similar with the endowment mortgage miss-selling, Having had two of the latter products and one of the former for a month before I noticed it had been “tacked on” I can say that, apart from that month, I knew what I was getting in for. I remember fully my conversations with the financial advisor about his fees (and he didn’t have to sell that many a year to beat my wages in 1991) and the risks involved, I understood them. But I never claimed a penny in compensation for any of it, even though I had firms ringing me and letters through the door at it’s height, weekly. I knew what I was getting into and saying anything different would just be dishonest.
I can understand people claiming if they truly did not understand the costs, but looking at the size of the compensation bill I cannot believe that all that claimed were innocent and naive.
I’m with you on regulation mostly, and regulation around bad debt and the industry that it has spawned needs looking at.
JimJim
Enjoyed this.
People do seem to have a growing expectation of reward without any personal risk. Whereas being able to consciously choose which risks you decide are worth taking is what life & investing is all about.
Regulation always comes with good intentions but rarely ends up delivering as expected. Losing the freedom of choice often without the upside of actually improving things for the average person.
Nice read, thanks.
I’ve heard PPI compensation described as essentially helicopter money – a one off gift designed to put money into the hands of those who are most likely to spend it and hence boost the wider economy.
With PPI I thought it was only people who had a policy that was something they could never claim on as it was irrelevant to their circumstances. Why would anyone who understood what they were doing buy such a policy. Ergo all those who claimed didn’t understand. The only reason it could spiral out of control is if due diligence wasn’t done on each case – if anyone who had ever had PPI even if it was suitable put in a claim and was paid off (maybe this did happen, I wasn’t lucky enough to have had PPI ;))
The size of the bill doesn’t surprise me, we are talking what a decade or two of these policies
Prior to 2008 I applied for a large number of credit cards offering interest free credit. In most if not all instances you had to be really careful to tick a box so you did not get PPI. You also had to “Activate” cards over the phone after receiving them. This activation process was really just another opportunity to hard sell PPI if you had previously opted out.
IMHO the banks behaved appallingly and did not deserve to keep a penny of that £53B. PPI was the pinnacle of bank misbehaviour in pushing bad value financial products, going right back to those lousy endowment policies, and they fully deserved the hiding they took.
Most financial regulation is reasonable, some of it very good, but follow through on policing is often lacking. When I was working I did have significant restrictions on what I could invest in (even as a consultant) and how permission was granted, but much of that was down to financial firms copper bottoming the rules. Financial derivatives were largely banned, individual shares questionable and hoops jumped through, but index trackers and gilts were usually fine. The only irksome regulation I can think of that has affected me is that which stopped retail investors from buying US listed ETFs in their SIPPs.
@neaclue speaking as someone working for a financial regulator I can’t disagree that the policing doesn’t go far enough. The issue is always resource- there are more people breaching the rules than we (speaking widely of all the regulators) can possibly go after. So the best we can do is go after some of them pour encourager les autres, and provide as much guidance and information as we can.
Personally I do agree that people should be allowed to make mistakes- however they should do so knowing that they are taking risks. But where people have been warned and still go ahead with something like a pension transfer to a dodgy outfit, that’s their look out. Grownups should be grownups…
No mention of Mifid yet!
I think regulation / legal speak in general should be in proper english, looking through my property deeds you see paragraph long sentences wrote in a difficult to interpret, archaic way, almost as if the legal profession who write this stuff are trying to make a job for themselves in translation
There is a balance with regulation, its a political decision ultimately, self responsibility is half the story but give protection for generally responsable people who don’t do law/finance as a job – ie fscs protection because you haven’t looked through each bank’s balance sheets before opening a savings account
Separation of retail banking from investment banking would keep saving interest rates lower for longer, that’s tolerable at the moment but if hypothetically one day you have a base rate at 5%+ and savings still at 0.5% people might start asking questions
P2P is a great example of how retail investors refuse to take responsibility for their own speculation. I was in P2P from 2005 but got heavily involved from 2013 through 2016.
I spent a number of years on the P2P indie forum, writing hundreds of posts, many of which tried to explain the actual risks lenders were taking in the more risky end of the P2P spectrum. People just refused to any due diligence or even think. They didn’t bother to understand that many of the people running the platforms had zero experience in fixed income credit risk management. Some had shady backgrounds in bucket shops. They didn’t understand that, yes, they were getting 12%/annum, but the borrowers were paying 24% and that the other 12% was going to the platform and brokers for taking no risk. They didn’t understand that those borrowers, even though it seems paying 24% is very high, were actually getting a great deal, where they limited their downside and massively leveraged their upside (hence why it was called “speculative property development”). It was the lenders who had asymmetric risk. At a very basic level, the retail investors didn’t even bother to understand the basics of default probability and recovery rates. They thought that somehow because a loan secured at 70% LTV by property they couldn’t lose money.
For many of these retail investors, they treated it like an instant access savings account paying 12%. Somehow they never asked “is this too good to be true?”. Why were they getting 2x junk bond yields? I could buy 1-year 12% loans at par, hold them for 11 months, stripping off 11%, and sell them back to some poor schmuck at par. They took all the default risk for 1%. I would underwrite toxic waste loans for platforms and spin them out to retail who would gobble them up. It was just bonkers. Like taking candy off a baby.
Of course, when it all went tits up, when the defaults skyrocketed, the recoveries were minimal, the platforms collapsed and the owners moved funds off to the BVI, they all scream for compensation. “We were duped”, “the FCA is to blame”. No! The lenders were greedy and stupid and now want to be bailed out. Bit like those banks they all still moan about.
Like you I always carefully consider my options and I have never taken out PPI. However, I know plenty of people who find this stuff really difficult and have chaotic financial lives. When I read that people “should have done their homework” and “didn’t bother to read” the terms and conditions, I can’t help thinking a bit more empathy wouldn’t go amiss. Many people, perhaps the majority of people, simply don’t have the capacity to understand these kinds of details. Some of them would have had better life chances if they’d received some financial education either at home or at school, and others would still fall foul of those carefully orchestrated marketing campaigns without outside protection.
On Woodford, the class action against Link which is being led by Leigh Day explains the case as follows:
“Leigh Day’s investigations lead it to believe that Link allowed WEIF to hold excessive levels of illiquid or difficult-to-sell investments, and that this caused investors significant loss. In doing so, we consider Link breached the rules of the FCA Handbook and failed to properly carry out the management function of the Woodford Equity Income Fund.”
I have no idea whether the claim will be successful, but it doesn’t strike me as investors complaining the fund didn’t make a high enough return, more that it was run contrary to the regulations – presumably because Neil Woodford went off piste with his investments rather than holding the types of companies he said he would in the prospectus.
@Nebilon, hah yes! But why is enforcement under resourced? It has always been that way. The SEC were always much more feared as a regulator than the SFA, FSA or FCA. The cynic in me suggests this is UK policy. Sound tough on regulation, but not bother to enforce too heavily in case we discourage capital from flowing here, or to discourage “innovation”. It is not as though beefing up enforcement would not be self funding given the fines that can be handed out.
I don’t know the details of the case in-depth, but the article I link to above (which is now rather old, as is this example) states that the investors would be seeking compensation for the opportunity cost of not being invested elsewhere:
While I have views about whether investors in active funds should complain when the fund manager is active and it doesn’t go well – and you can probably guess what they are – it was the nature of the compensation I was referring to here.
The arguments against regulation are along the lines of restricting a knowledgeable private investor from doing something rational and potentially profitable.
A further danger with excessive regulation and consumer protection is that of moral hazard, I’ll do something highly risky and if it works out great and if it doesn’t I’ll be compensated.
I personally don’t need that level of protection and when I transferred out of a Defined Benefit pension, when it was first made possible, I was annoyed at having to jump through hoops.
However a lot of people are naive….steel workers ‘tricked’ out of pensions, dodgy mini bonds, endowments were sold not bought, PPI was incredibly expensive with limited benefits paying excessive commission , split capital trusts ‘magic circles’ , etc
The recent Reddit excitement is a recipe for bots, market manipulation, pump and dump…
We need a balance of regulation to prevent deceit, offer transparency and at that point the consumer should be free to make mistakes.
At the end of the day, my experience closely mirrors that of @ZXSpectrum48k. It’s true the people who most often run into trouble with financial products do not have anything like the experience of readers of this website; however it’s also true they (mostly) do a fraction of the reading and spend a fraction of their time thinking about the potential downsides and consequences.
Some of you clearly say “yes, and that’s why we need to regulate most things out of their hands”.
I am basically saying: Regulate down to that lowest common denominator / intersect of little knowledge and even less interest, and as I say in the piece you’ll end up (to over-exaggerate) with FSCS savings accounts for the everyday person and that’s your lot.
I could even see people moaning that @TA’s model passive portfolio ‘misled’ them into thinking that a diversified portfolio would deliver strong returns over time, if one year it didn’t.
Obviously root out the crooks and frauds. As others have said and I say in my piece, no argument with that.
But people using regulated products unwisely should know it’s their lookout, for the sake of wider financial freedom.
Of course we all think they should be better educated, that’s a platitude. And the first thing they should learn is “be paranoid, and think thrice, and do some homework / get professional advice if you need it.”
A sad story but perhaps inevitable: young investor thinks he’s incurred a huge loss, kills himself, family sues RobinHood.
https://www.theguardian.com/us-news/2021/feb/09/robinhood-sued-by-family-of-stock-trader-who-killed-himself