Shaped by the Rules. How Inducement Regulation Will Change the Investment Service Industry

Inducement regulation is intended to target the conflict of interests between financial advisors and their clients. Nonetheless, it may also represent a ‘public policy device’ meant to conform the activity of European distributors with investor protection goals; indeed, by selecting the conditions under which distributors can freely collect inducements, the European regulator simultaneously shapes the market for financial services. Accordingly, ‘spot advice’ (which poorly performed in the past) is indirectly banned by the quality-enhancement provision set forth in art. 24 MiFID II, and the acknowledged importance of on-going monitoring of the portfolio opens up the collection of inducements linked to the provision of ‘periodic advice’. Since this new regime will probably increase the overall costs of investment advice enlarging the ‘advice gap’, the European regulator tries also to foster the development of FinTech permitting the collection of inducements even outside the strict provision of investment advice. Nevertheless, the concerns regarding investor protection raised by FinTech services (which allow only a mere ‘self-assessment’ of the investor’s profile) suggest a broader interpretation of inducement regulation, with the purpose of enabling investment firms to provide low-cost financial advice capable of effectively encompassing every stage of the investment relationship, from the early assessment of clients’ characteristics and objectives to the on-going management of the investments (‘simplified advice’).

The Financial Press and the Investing Public

For centuries, Britain has had a financial media landscape unrivalled in Europe with newspapers like the Financial Times or The Economist traditionally keeping business professionals up to date about market developments. But by the early twentieth century, punters could get the latest prices and market-moving stories from tabloids like the Daily Express and the Daily Mail. By 1960, even the working-class Daily Mirror had a designated City page—right next to the racing coverage—and gave investment advice to people of modest means. This chapter takes a fresh look at the financial press as the main source of information for private investors of different social backgrounds. When seeking to explain why economic liberalism became fashionable again in Britain during the 1970s, we must consider that for more than two decades, millions of newspaper readers had been increasingly exposed to the asserted benefits of free-market capitalism and were actively encouraged to take part in the market. Recent studies on the history of neoliberalism state that financial journalism became an important amplifier for the Thatcherite language of profits in the 1980s. This chapter argues that this misses the point and shows instead how Britain’s financial press was not an echo chamber of Westminster politics—it set the tone of the wider share ownership agenda. The newspaper columns of the Financial Times and the Daily Telegraph or the market populism of The Express, The Mail, and The Mirror played a crucial part in shifting British public opinion in favour of free-market capitalism.

Investment Services Regulation in Germany and Japan

This article studies the protection of retail and professional investors when financial products are sold or when investment advice is given. To this end, it clarifies the similarities and differences in the legal setting governing investment services firms in Germany and Japan, with a particular focus on a) the persons to be protected, b) information to be provided and c) private enforcement. Although regulatory structures are largely divergent in these two jurisdictions, the legal situation converges in several important points in relation to lawmaking in the European Union and the United States. Those convergences appear informative for the development of laws in jurisdictions other than Germany and Japan.

Using Machine Learning and Artificial Intelligence Principles to Implement a Wealth Management System

Studies have shown that new generation of millennials have limited to no knowledge about managing their finances. This lack of awareness has created a need for financial literacy which is not only an essential employ-ability skill but also, a paramount life skill. Not only the younger generation but many individuals already in the corporate field are at their wit’s end when it comes to planning their finances and making correct financial decisions. This is where awareness in wealth management comes in. Wealth management is an investment advisory service. It also combines financial services to address the needs of individuals. It is more than just investment advice; it encompasses all parts of a person's financial life. The users can find all the information of different investments rather than integrating all the information from different places. They can generate a plan themselves or with the help of artificial intelligence and machine learning principles, manage their own and their family's current and future needs.

Robo-Advising Risk Profiling through Content Analysis for Sustainable Development in the Hong Kong Financial Market

Nowadays, we mainly depend on financial consultants or advisors to conduct risk assessments for individual investors before providing them with any investment advice or recommendations. Individual investors should understand the risk level of their investment choices and their investment decisions should match their risk profile. This process is usually conducted in face-to-face meetings. However, during the recent coronavirus disease 2019 pandemic, which has seriously impacted daily life with social distancing, in order to maintain sustainability, contact-free advising, such as robo-advising, becomes more important. The aim of this paper was to assess customers’ risk in regards to investment and identify important risk factors needed to profile individual risk preferences, in order to prepare for robo-advising. Inductive content analysis is applied to classify 180 questions from 20 risk assessment questionnaires, sourced from banks and investment service providers, into different types. Then, the number of types is reduced by collapsing similar areas into broader higher order categories (the important risk factors). This paper also makes specific recommendations for the implementation of risk profiling in robo-advising.

Does the principle of investment diversification apply to the starting pitching staffs of major league baseball teams?

Financial advisors often emphasize asset diversification as a means of limiting losses from investments that perform unexpectedly poorly over a particular time period. One might expect that this perceived wisdom could apply in another high stakes arena–professional baseball–where player salaries comprise a substantial portion of a team’s operational costs, year-to-year player performance is highly variable, and injuries can occur at any time. These attributes are particularly true in the case of the starting pitching staffs of professional baseball teams. Accordingly, this study analyzes starting pitcher performance and financial data from all Major League Baseball teams for the period 1985–2016 to determine whether the standard investment advice is applicable in this context, understanding that the time horizon for success for an investor and a baseball team may be distinct. A multiple logistic regression model of playoff qualification probability, based on realized pitcher performance, measures of luck, and starting pitcher staff salary diversification is used to address this question. A further stratification is conducted to determine whether there are differences in strategy for teams with allocated financial resources that are above or below league average. We find that teams with above average resources increase their post-season qualification probability by focusing their salary funds on a relative few starting pitchers rather than diversifying that investment across the staff. Second, we find that pitcher performance must align with that investment in order for the team to have a high qualification probability. Third, the influence of luck is not negligible, but those teams that allocate more overall funds to their pitching are more resilient to bad luck. Thus, poorly resourced teams, who are generally unable to bid for pitchers at the highest salary levels, must adopt alternative strategies to maintain their competitiveness.