1 00:00:03,160 --> 00:00:10,520 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. We haven't done this 2 00:00:10,560 --> 00:00:11,040 Speaker 1: for a while. 3 00:00:11,480 --> 00:00:13,080 Speaker 2: We haven't seen each other in two weeks, I know. 4 00:00:13,320 --> 00:00:15,360 Speaker 2: But after like ten days of going by your desk 5 00:00:15,520 --> 00:00:17,079 Speaker 2: and everyone's like, no, we don't know where she is. 6 00:00:17,160 --> 00:00:20,560 Speaker 1: Oh my god, Like I told them all, just if 7 00:00:20,640 --> 00:00:22,840 Speaker 1: that comes by, I'm not here. No, I don't know 8 00:00:22,840 --> 00:00:25,680 Speaker 1: where I've been. But now we're back in the booth. 9 00:00:25,960 --> 00:00:29,640 Speaker 2: Back in the booth. Hello, and welcome to The Money 10 00:00:29,680 --> 00:00:32,480 Speaker 2: Stuff Podcast. You're a weekly podcast where we talk about 11 00:00:32,479 --> 00:00:36,440 Speaker 2: stuff related to money. I'm Matt Levian and I are 12 00:00:36,440 --> 00:00:38,839 Speaker 2: at the Money Stuff comn for Bloomberg Opinion. 13 00:00:38,760 --> 00:00:41,199 Speaker 1: And I'm Katie Greifeld, a reporter for Bloomberg News and 14 00:00:41,240 --> 00:00:42,680 Speaker 1: an anchor for Bloomberg Television. 15 00:00:44,360 --> 00:00:46,360 Speaker 2: It's good to be back, Katie, It's good. 16 00:00:46,159 --> 00:00:46,880 Speaker 1: To be back. 17 00:00:47,040 --> 00:00:48,000 Speaker 2: What's gone on today? 18 00:00:48,240 --> 00:00:51,760 Speaker 1: Well, we're going to talk about incredited investors what that is? 19 00:00:51,840 --> 00:00:57,080 Speaker 1: Should it exist? We'll talk about beamstocks growing up or Meme. 20 00:00:57,000 --> 00:00:59,400 Speaker 2: Investors investment firms. 21 00:00:59,440 --> 00:01:02,400 Speaker 1: True, that's true, and we're going to talk about naughty esg. 22 00:01:04,360 --> 00:01:11,480 Speaker 2: It's less fun that it's accredited investors. 23 00:01:11,800 --> 00:01:15,160 Speaker 1: Yeah, what are they? So? Currently two hundred thousand dollars 24 00:01:15,200 --> 00:01:17,880 Speaker 1: income is what you need to be or a one 25 00:01:17,920 --> 00:01:20,120 Speaker 1: million dollar net worth if I'm an individual. 26 00:01:20,720 --> 00:01:22,520 Speaker 2: Yeah, so it's all sorts of like bars. Right, So, 27 00:01:22,600 --> 00:01:25,560 Speaker 2: like the way it sort of like casually works is 28 00:01:25,600 --> 00:01:28,640 Speaker 2: that you can invest in private stuff if you're an 29 00:01:28,640 --> 00:01:31,880 Speaker 2: accredited investor, and you can and anyone can invest in 30 00:01:31,920 --> 00:01:36,480 Speaker 2: public stuff. And the accredited investor bar used to be 31 00:01:36,560 --> 00:01:39,000 Speaker 2: like I don't like one or two or five percent 32 00:01:39,040 --> 00:01:42,200 Speaker 2: of households, and now it's like twenty percent of households 33 00:01:42,280 --> 00:01:44,759 Speaker 2: because it's not index to inflation. So now you need 34 00:01:44,800 --> 00:01:47,200 Speaker 2: to have an income of two hundred thousand dollars a 35 00:01:47,280 --> 00:01:49,640 Speaker 2: year or three hundred thousand dollars for a couple, or 36 00:01:49,640 --> 00:01:53,280 Speaker 2: have networth of a million dollars, or have a series 37 00:01:53,360 --> 00:01:55,400 Speaker 2: seven or serious sixty five lescens. So if you have 38 00:01:55,440 --> 00:01:58,120 Speaker 2: like the securities license, you can be an accredited investor, 39 00:01:58,480 --> 00:02:00,920 Speaker 2: and if you're an accredited investor, you can invest in 40 00:02:01,160 --> 00:02:09,239 Speaker 2: various sorts of private investments, mainly like startups. And people 41 00:02:09,320 --> 00:02:12,079 Speaker 2: don't like these rules. Yeah, I should say, I read 42 00:02:12,080 --> 00:02:14,760 Speaker 2: about this the other day, and he'll point out they're 43 00:02:14,760 --> 00:02:19,040 Speaker 2: actually two like higher bars. So there's the bar for 44 00:02:20,160 --> 00:02:24,840 Speaker 2: investing in hedgehunds and private equity firms, which is basically, 45 00:02:24,960 --> 00:02:26,800 Speaker 2: if you're an investment manager and you want to charge 46 00:02:26,919 --> 00:02:29,920 Speaker 2: performance fees like hedgehunds and private equity do, you need 47 00:02:29,960 --> 00:02:33,760 Speaker 2: to have qualified clients, which basically means like a two 48 00:02:33,800 --> 00:02:35,600 Speaker 2: point two million dollar networth, So it's a little bit 49 00:02:35,600 --> 00:02:38,320 Speaker 2: of a higher bar than the accredited investor bar. And 50 00:02:38,360 --> 00:02:41,079 Speaker 2: then the other thing is like there's certain kinds of 51 00:02:41,120 --> 00:02:45,440 Speaker 2: private investments that are only open to quibs qualified institutional buyers, 52 00:02:45,480 --> 00:02:48,320 Speaker 2: which basically means an institution with at least one hundred 53 00:02:48,320 --> 00:02:51,120 Speaker 2: million dollars. So like those are the higher bars, but 54 00:02:51,320 --> 00:02:54,000 Speaker 2: anyone can invest in startups in theory if they're an 55 00:02:54,000 --> 00:02:57,760 Speaker 2: accredited investor, which means, you know, a two hundred thousand 56 00:02:57,760 --> 00:03:01,400 Speaker 2: dollars income, which is like not that uncommon these days. 57 00:03:01,400 --> 00:03:02,880 Speaker 2: Like one thing I pointed out is that like the 58 00:03:02,960 --> 00:03:06,360 Speaker 2: number of people who meet that qualification is about equal 59 00:03:06,360 --> 00:03:08,920 Speaker 2: to the number of people who own stocks directly. So 60 00:03:08,960 --> 00:03:12,919 Speaker 2: it's like the investor class is pretty much overlapping with 61 00:03:13,080 --> 00:03:16,320 Speaker 2: the accredited investor class. There's this perception that like these 62 00:03:16,360 --> 00:03:19,480 Speaker 2: days the good investments are the private investments. Yeah, like 63 00:03:19,480 --> 00:03:21,760 Speaker 2: we were talking about a lot, right, and so they're like, 64 00:03:21,800 --> 00:03:23,440 Speaker 2: why is it that, like people who don't have a 65 00:03:23,440 --> 00:03:25,720 Speaker 2: lot of money can't get the good investments? And then two, 66 00:03:25,720 --> 00:03:30,280 Speaker 2: why is it that, like the term accredited just correlates 67 00:03:30,280 --> 00:03:32,680 Speaker 2: with the wealth, Like it sort of seems like accredited 68 00:03:33,080 --> 00:03:35,200 Speaker 2: means good or smart. 69 00:03:34,920 --> 00:03:37,960 Speaker 1: Or perhaps qualified In some right. 70 00:03:38,040 --> 00:03:40,360 Speaker 2: It seems unfair that qualified would just be in like 71 00:03:40,440 --> 00:03:43,440 Speaker 2: having enough money, and so there's always this push to 72 00:03:43,480 --> 00:03:46,400 Speaker 2: open it up for like a test. So it used 73 00:03:46,440 --> 00:03:48,560 Speaker 2: to be only the money qualification, and now if you 74 00:03:48,600 --> 00:03:51,200 Speaker 2: have certain securities licenses like this Ery seven, you can 75 00:03:51,240 --> 00:03:53,600 Speaker 2: also be an accredited investor because you're, like, you know, 76 00:03:53,640 --> 00:03:55,720 Speaker 2: if you like work at an investment bank, like, you're 77 00:03:55,720 --> 00:03:57,720 Speaker 2: probably like you know, probably know as much as the 78 00:03:57,760 --> 00:04:01,120 Speaker 2: average bear about like investments. And so the most recent 79 00:04:01,160 --> 00:04:03,720 Speaker 2: news is that, like the Senate is pushing for a 80 00:04:03,720 --> 00:04:06,880 Speaker 2: bill to make the sec write an exam that anyone 81 00:04:06,880 --> 00:04:08,560 Speaker 2: can take, and if you pass the exam, then you're 82 00:04:08,560 --> 00:04:11,040 Speaker 2: an a credited investor and you can buy private stuff. 83 00:04:11,360 --> 00:04:14,240 Speaker 1: This scratched a memory up to the surface. This is 84 00:04:14,280 --> 00:04:17,200 Speaker 1: slightly different, but it's related. In April twenty twenty two, 85 00:04:17,960 --> 00:04:23,200 Speaker 1: FINRA called for comments on whether they should introduce knowledge 86 00:04:23,279 --> 00:04:28,240 Speaker 1: checks before you know, retail could buy what they defined 87 00:04:28,240 --> 00:04:31,520 Speaker 1: as complex products, which basically meant like leverage and all 88 00:04:31,560 --> 00:04:33,599 Speaker 1: these like funky ETFs that we talk about on this 89 00:04:33,640 --> 00:04:38,839 Speaker 1: podcast sometimes. And that was met with outrage. People hated 90 00:04:38,880 --> 00:04:39,600 Speaker 1: that idea. 91 00:04:39,480 --> 00:04:42,200 Speaker 2: Right, because that's like those products are public product. Anyone 92 00:04:42,200 --> 00:04:44,040 Speaker 2: can buy those, right. You don't have to be a 93 00:04:44,160 --> 00:04:47,960 Speaker 2: credited investor to buy a triple LEBRITYTF or zeroed A 94 00:04:48,000 --> 00:04:51,320 Speaker 2: options on socks. There's all sorts of stuff that is 95 00:04:51,800 --> 00:04:54,560 Speaker 2: available to the public, which basically sort of means like 96 00:04:54,600 --> 00:04:58,560 Speaker 2: it's meant disclosure requirements, right, there's not formally supposed to 97 00:04:58,560 --> 00:05:01,640 Speaker 2: be like really substantively of like whether it's a good investment. 98 00:05:01,760 --> 00:05:03,640 Speaker 2: You know, there's like a certain amount of pressure on 99 00:05:03,680 --> 00:05:06,480 Speaker 2: stuff to not be crazy stuff. But like in general, 100 00:05:06,560 --> 00:05:09,160 Speaker 2: there's a lot of public stuff that is risky, and 101 00:05:10,600 --> 00:05:13,960 Speaker 2: there's this weird situation where a lot of public investments 102 00:05:14,000 --> 00:05:16,359 Speaker 2: are very risky and dangerous and sort of hard to 103 00:05:16,400 --> 00:05:20,080 Speaker 2: understand and anyone can buy them. Yeah, And then there's 104 00:05:20,120 --> 00:05:23,080 Speaker 2: a lot of private market stuff that's like like space 105 00:05:23,279 --> 00:05:25,640 Speaker 2: stuck that like you're not allowed to buy because it's 106 00:05:25,680 --> 00:05:27,800 Speaker 2: limited to people with at least two hundred thousand dollars 107 00:05:27,839 --> 00:05:31,760 Speaker 2: of income. It's weird that anyone can buy the products 108 00:05:31,760 --> 00:05:34,599 Speaker 2: that Finnerun's toy strict and then like they're trying to 109 00:05:34,640 --> 00:05:37,719 Speaker 2: expand the qualification for the act. 110 00:05:37,839 --> 00:05:40,800 Speaker 1: Time again they opened it up for comments. They received 111 00:05:41,160 --> 00:05:44,640 Speaker 1: more than twelve thousand comments, which was pretty wild. That 112 00:05:44,800 --> 00:05:47,320 Speaker 1: shattered the record. I don't know if it's since been shattered, 113 00:05:47,320 --> 00:05:50,520 Speaker 1: if they've opened up comments to anything else crazier, but 114 00:05:50,839 --> 00:05:54,000 Speaker 1: usually they get like a couple dozen comments, so this 115 00:05:54,160 --> 00:05:57,320 Speaker 1: was wild. It is interesting, you know, the disclosure base 116 00:05:57,960 --> 00:05:59,400 Speaker 1: sort of whatever is how we do it now. I 117 00:05:59,400 --> 00:06:02,520 Speaker 1: don't know how it want to talk about that, but basically, 118 00:06:02,560 --> 00:06:05,560 Speaker 1: you can market all of this crazy risky stuff as 119 00:06:05,560 --> 00:06:07,760 Speaker 1: long as you put in like big bright letters that 120 00:06:08,279 --> 00:06:12,000 Speaker 1: you might and probably will lose money on that. That's fine. 121 00:06:12,279 --> 00:06:15,479 Speaker 2: Yeah, although like a weird aspect of that is you're 122 00:06:15,640 --> 00:06:20,440 Speaker 2: often buying it through your app, right, Yeah, Like there's 123 00:06:20,440 --> 00:06:24,040 Speaker 2: no requirement that you've read any of the disclosure The 124 00:06:24,120 --> 00:06:27,400 Speaker 2: firms can't market it without all the warnings disclosures, but 125 00:06:27,520 --> 00:06:29,440 Speaker 2: you can buy it, you know, you pushed button. 126 00:06:29,560 --> 00:06:31,960 Speaker 1: That's what one of the points that Finn made at 127 00:06:31,960 --> 00:06:35,440 Speaker 1: the time that since these rules were put in place. 128 00:06:35,640 --> 00:06:38,080 Speaker 1: There's a lot more self directed investors in the market 129 00:06:38,080 --> 00:06:41,479 Speaker 1: now that aren't necessarily going through a financial advisor. There's 130 00:06:41,480 --> 00:06:44,000 Speaker 1: a lot of people just clicking around on robin Hood 131 00:06:44,040 --> 00:06:45,919 Speaker 1: for example. That's a deep tease to what we'll be 132 00:06:45,920 --> 00:06:49,320 Speaker 1: talking about next. And that's why they floated the idea 133 00:06:49,440 --> 00:06:53,440 Speaker 1: of a knowledge check that was unpalatable. It's interesting that 134 00:06:53,560 --> 00:06:57,040 Speaker 1: the Senate is pushing for some sort of test now. 135 00:06:57,440 --> 00:07:00,240 Speaker 2: Yeah, and like private investments are the opposite, Right, you 136 00:07:00,279 --> 00:07:01,640 Speaker 2: can't buy them on it app. You do have to 137 00:07:02,320 --> 00:07:04,039 Speaker 2: you know, essentially buy them through a broker or a 138 00:07:04,040 --> 00:07:08,320 Speaker 2: financial advisor, right, And there is some history of skepticism 139 00:07:08,360 --> 00:07:10,720 Speaker 2: about how aligned the interests of some of these brokers 140 00:07:10,760 --> 00:07:12,440 Speaker 2: are with their clients. Right. I mean, there's a lot 141 00:07:12,480 --> 00:07:15,840 Speaker 2: of private market stuff that is very high fee has, 142 00:07:15,880 --> 00:07:19,200 Speaker 2: like lots of layers of fees for products that like, 143 00:07:19,280 --> 00:07:21,120 Speaker 2: you know, you could probably do better by buying a 144 00:07:21,360 --> 00:07:23,800 Speaker 2: you know, index CTF, but like the advisor gets paid 145 00:07:23,840 --> 00:07:30,000 Speaker 2: more for selling you the complex product. And making people 146 00:07:30,080 --> 00:07:35,800 Speaker 2: pass a test might make them more resistant to getting 147 00:07:35,840 --> 00:07:38,800 Speaker 2: pitched bad products, but it might just make them feel 148 00:07:38,800 --> 00:07:43,040 Speaker 2: more sophisticated and then make the advisors salivate of even 149 00:07:43,040 --> 00:07:45,280 Speaker 2: more over selling them bad products. Right, I don't know 150 00:07:45,320 --> 00:07:46,160 Speaker 2: about these tests. 151 00:07:46,680 --> 00:07:48,520 Speaker 1: You know, there's not a lot of teach one. 152 00:07:48,400 --> 00:07:51,080 Speaker 2: I would I wrote, I would love to write one, right, 153 00:07:51,080 --> 00:07:52,800 Speaker 2: I would also love to I love taking standard I 154 00:07:52,840 --> 00:07:57,400 Speaker 2: s house but that tracks. Yeah, but like it would 155 00:07:57,400 --> 00:07:58,800 Speaker 2: be so fun to write this list. But like just 156 00:07:58,920 --> 00:08:00,840 Speaker 2: you sort of know what it would be like. It 157 00:08:00,880 --> 00:08:05,640 Speaker 2: would be like, you know, like compound interest and like that. 158 00:08:06,000 --> 00:08:08,200 Speaker 2: It would be like sort of like financing trivia. He 159 00:08:08,240 --> 00:08:11,200 Speaker 2: would potentially give you the illusion of being sophisticated and 160 00:08:11,240 --> 00:08:14,040 Speaker 2: being able to sort of see through. Yeah, but that's 161 00:08:14,120 --> 00:08:18,040 Speaker 2: that's all your financial advisor needs, sow you sort of 162 00:08:18,080 --> 00:08:20,480 Speaker 2: ruinous product. If you were starting from scratch, you would 163 00:08:20,520 --> 00:08:22,720 Speaker 2: not like divide the investment universe this way, right, Like 164 00:08:23,320 --> 00:08:25,600 Speaker 2: you would not let people buy all of the risky, 165 00:08:25,640 --> 00:08:28,440 Speaker 2: weird products that Fenner is nervous about. When the Senate 166 00:08:28,480 --> 00:08:30,160 Speaker 2: talks about this, they talk about like, you know, investing 167 00:08:30,160 --> 00:08:32,679 Speaker 2: in like local small businesses, right, Like you can't like 168 00:08:33,080 --> 00:08:35,680 Speaker 2: those they are exemptions to the rules. But in general, 169 00:08:35,760 --> 00:08:38,400 Speaker 2: it's kind of like difficult and risky for small businesses 170 00:08:38,400 --> 00:08:41,839 Speaker 2: to raise money from like people in their community. Because 171 00:08:41,840 --> 00:08:43,760 Speaker 2: like there are you have to bet SEC exemptions, like 172 00:08:43,800 --> 00:08:46,040 Speaker 2: there's a credit investor tests, and it might be nicer 173 00:08:46,160 --> 00:08:49,520 Speaker 2: if more people could make those sorts of private investments. 174 00:08:49,880 --> 00:08:53,880 Speaker 2: And those investments in some ways seem like more appealing 175 00:08:54,120 --> 00:08:57,480 Speaker 2: or more like wholesome than like triple levertyts or whatever. Right, 176 00:08:58,080 --> 00:09:00,760 Speaker 2: the complex products that that Fenner is right, this is 177 00:09:00,800 --> 00:09:03,040 Speaker 2: more of a niche comment, but I liked it. So 178 00:09:03,679 --> 00:09:06,240 Speaker 2: I used to be a convertible bond underwriter, right, And 179 00:09:06,320 --> 00:09:09,240 Speaker 2: like a lot of bonds are done under an SEC 180 00:09:09,400 --> 00:09:12,160 Speaker 2: rule called rule one forty four A, which basically means 181 00:09:12,280 --> 00:09:14,120 Speaker 2: that you have to be one hundred million dollar institution 182 00:09:14,240 --> 00:09:17,439 Speaker 2: to buy them, right, And it just like it makes 183 00:09:17,480 --> 00:09:20,000 Speaker 2: their disclosure a little bit easier. But one reader was like, 184 00:09:20,480 --> 00:09:22,040 Speaker 2: why am I allowed to buy the stock of a 185 00:09:22,040 --> 00:09:24,480 Speaker 2: public company but not their one forty four A bonds? 186 00:09:24,679 --> 00:09:28,080 Speaker 2: The one forty fairy bonds are sort of by definition safer, right, 187 00:09:28,080 --> 00:09:30,360 Speaker 2: they're like senior in the capitol structure, but like he's 188 00:09:30,400 --> 00:09:31,679 Speaker 2: not allowed to buy them because he doesn't have a 189 00:09:31,800 --> 00:09:34,719 Speaker 2: hundred million dollar fund, right, But like anyone can buy 190 00:09:34,760 --> 00:09:36,680 Speaker 2: the stock. So there's a lot of stuff like that 191 00:09:36,720 --> 00:09:39,040 Speaker 2: where it's like what gets treated as like a risky, 192 00:09:39,120 --> 00:09:41,320 Speaker 2: dangerous thing for retail investors, and what gets treated as 193 00:09:41,360 --> 00:09:43,080 Speaker 2: like no problem, anyone can buy that by clicking a 194 00:09:43,120 --> 00:09:47,199 Speaker 2: button just doesn't track any like economic or disclosure reality. 195 00:09:47,480 --> 00:09:49,920 Speaker 2: So I don't know, I don't have a good solution. 196 00:09:50,120 --> 00:09:52,800 Speaker 2: I've written my bad solution, which is that the SEC 197 00:09:52,840 --> 00:09:55,920 Speaker 2: should give out a certificate of dumb investment where you say, 198 00:09:56,320 --> 00:09:58,320 Speaker 2: I know I'm buying something dumb, and they slap you 199 00:09:58,679 --> 00:10:00,480 Speaker 2: and you say, no, I really want to buy something dumb, 200 00:10:00,720 --> 00:10:03,600 Speaker 2: and then like they give you the certificate. But like 201 00:10:03,600 --> 00:10:07,000 Speaker 2: the important thing in my original proposal was that then 202 00:10:07,000 --> 00:10:09,160 Speaker 2: if the thing goes to zero, you're not allowed to complain, 203 00:10:09,320 --> 00:10:11,600 Speaker 2: like to the press or to anyone, right because like 204 00:10:11,640 --> 00:10:13,800 Speaker 2: a lot of this stuff, it's like retail investors buy 205 00:10:13,800 --> 00:10:15,679 Speaker 2: this terrible thing and I realized that is a terrible thing, 206 00:10:15,760 --> 00:10:17,400 Speaker 2: Like no, no, it's gonna be great, and then they 207 00:10:17,440 --> 00:10:18,920 Speaker 2: buy it and goes to zero and they're like, oh 208 00:10:19,000 --> 00:10:20,559 Speaker 2: I was defrauded. It's like, oh, you knew it was 209 00:10:20,600 --> 00:10:24,880 Speaker 2: a terrible thing. So the idea of like making people 210 00:10:24,920 --> 00:10:27,240 Speaker 2: sign a form saying they know they're being dumb is 211 00:10:27,240 --> 00:10:28,800 Speaker 2: appealing to me because when it would sort of like 212 00:10:28,840 --> 00:10:32,040 Speaker 2: obviate some complaints. And then two, like all this stuff 213 00:10:32,080 --> 00:10:36,000 Speaker 2: about accredited investors, like it comes from a place of 214 00:10:36,080 --> 00:10:39,320 Speaker 2: like thinking, those are the smart investors who get access 215 00:10:39,360 --> 00:10:42,360 Speaker 2: to the good stuff, and I suspect that the real 216 00:10:42,400 --> 00:10:44,440 Speaker 2: experience is kind of the opposite, where like those are 217 00:10:44,440 --> 00:10:47,960 Speaker 2: the investors who get pitched the expensive, weird stuff. And 218 00:10:49,559 --> 00:10:54,480 Speaker 2: when you make it a test of financial sophistication, then 219 00:10:54,559 --> 00:10:56,480 Speaker 2: like people want to take that test. They want to 220 00:10:56,480 --> 00:10:58,400 Speaker 2: pass that test, and then they passed. This was like, oh, 221 00:10:58,440 --> 00:11:00,920 Speaker 2: I'm so sophisticated, and then they buy the worst stuff 222 00:11:01,200 --> 00:11:03,880 Speaker 2: because like they have this illusion of sophistication, Whereas if 223 00:11:03,920 --> 00:11:05,800 Speaker 2: you make them sign of things saying this is dumb, 224 00:11:06,400 --> 00:11:09,880 Speaker 2: like it's less aspirational and like maybe maybe like deters 225 00:11:09,920 --> 00:11:10,960 Speaker 2: them from buying the worst things. 226 00:11:11,080 --> 00:11:13,840 Speaker 1: That's true. I mean it would be labor intensive to 227 00:11:14,200 --> 00:11:16,640 Speaker 1: have to line up like a staffer to slap every 228 00:11:16,679 --> 00:11:18,680 Speaker 1: single person that it's. 229 00:11:18,559 --> 00:11:20,880 Speaker 2: Really a hypothetical, but like I like it, you know. 230 00:11:21,080 --> 00:11:22,560 Speaker 1: I don't know, I think we should kick it around. 231 00:11:22,920 --> 00:11:41,840 Speaker 1: Write the test, Matt. We didn't insult any dentists when 232 00:11:42,040 --> 00:11:45,840 Speaker 1: mean stocks grow up? You know, Robin Hood, do you 233 00:11:45,880 --> 00:11:49,480 Speaker 1: know Robin I remember a time when their bare case 234 00:11:49,520 --> 00:11:51,280 Speaker 1: on robin Hood is that, you know, you would have 235 00:11:51,360 --> 00:11:54,560 Speaker 1: all these people who use robin hood as a gateway 236 00:11:54,600 --> 00:12:00,679 Speaker 1: drug and then graduate up into proper investments such as 237 00:12:00,679 --> 00:12:03,800 Speaker 1: index funds, and that they migrate over to like Schwab 238 00:12:04,040 --> 00:12:07,160 Speaker 1: or Fidelity for example. That hasn't really been the case, 239 00:12:07,840 --> 00:12:08,240 Speaker 1: hasn't that. 240 00:12:09,240 --> 00:12:11,640 Speaker 2: I mean, you and I were reading this Baron's article 241 00:12:11,679 --> 00:12:14,600 Speaker 2: about how robinhood is growing up, and like the stat 242 00:12:14,640 --> 00:12:17,080 Speaker 2: that I found shocking is something like ten percent of 243 00:12:17,120 --> 00:12:20,839 Speaker 2: Americans have robinhood account Yeah, like American adults whatever and 244 00:12:20,920 --> 00:12:24,240 Speaker 2: rest adults, and robinhood has zero point three percent of 245 00:12:24,280 --> 00:12:25,480 Speaker 2: like retail financial. 246 00:12:25,160 --> 00:12:27,400 Speaker 1: Assets, which is sixty five trillion. 247 00:12:27,760 --> 00:12:33,120 Speaker 2: Sure, but like they are thirty three times bigger by 248 00:12:33,720 --> 00:12:36,000 Speaker 2: number of people than by assets, right, Like they have 249 00:12:36,520 --> 00:12:38,240 Speaker 2: a lot of people, but like a tiny fraction of 250 00:12:38,240 --> 00:12:40,280 Speaker 2: those people's assets, or else they have only the people 251 00:12:40,280 --> 00:12:43,880 Speaker 2: with very few assets, right or some companies. Yeah, and 252 00:12:44,000 --> 00:12:47,640 Speaker 2: that does sort of suggest that that bear case had 253 00:12:47,679 --> 00:12:50,760 Speaker 2: some truth to it, which is that people do the 254 00:12:50,800 --> 00:12:53,920 Speaker 2: fund trading on Robinhood, but when they grow up to 255 00:12:54,040 --> 00:12:56,120 Speaker 2: like their index funds, they do it somewhere else. 256 00:12:56,200 --> 00:12:58,640 Speaker 1: Well, two points to that number One, the stock is 257 00:12:58,720 --> 00:13:00,520 Speaker 1: up like one hundred and ten percent this year, so 258 00:13:00,600 --> 00:13:02,800 Speaker 1: like in terms of it being a bare case, it's 259 00:13:02,840 --> 00:13:05,120 Speaker 1: certainly not playing out in the stock market. And two 260 00:13:05,400 --> 00:13:09,199 Speaker 1: that may be the case. Robinhood is working really really 261 00:13:09,240 --> 00:13:12,800 Speaker 1: hard to grow up, which I find interesting. They had 262 00:13:12,840 --> 00:13:14,880 Speaker 1: their Hood summit in Miami. I think it was last 263 00:13:14,920 --> 00:13:17,080 Speaker 1: week or the week before, But in any case, they 264 00:13:17,080 --> 00:13:19,120 Speaker 1: have all these new features that are coming out. They 265 00:13:19,120 --> 00:13:23,280 Speaker 1: have this desktop trading platform. That's one thing. They're offering 266 00:13:23,320 --> 00:13:25,880 Speaker 1: index options for the first time. That's kind of exciting. 267 00:13:26,120 --> 00:13:28,800 Speaker 1: But I thought that this was interesting. There's one to 268 00:13:28,880 --> 00:13:32,800 Speaker 1: three percent matching bonuses for investors who transfer assets to 269 00:13:32,920 --> 00:13:35,840 Speaker 1: robin Hood's platform, so they'll pay you to bring your 270 00:13:35,880 --> 00:13:39,559 Speaker 1: money over to Robinhood. And as of June twenty twenty four, 271 00:13:39,640 --> 00:13:42,760 Speaker 1: Robinhood has provided customers more than two hundred million dollars 272 00:13:42,760 --> 00:13:46,959 Speaker 1: in matches on asset transfers and retirement account contributions. That's 273 00:13:46,960 --> 00:13:51,000 Speaker 1: according to the company. So they are trying to grow up. 274 00:13:51,040 --> 00:13:52,520 Speaker 2: Right, It makes little sense, right, I mean, if you're 275 00:13:52,559 --> 00:13:55,040 Speaker 2: a person who has like one thousand dollars robin Hood 276 00:13:55,040 --> 00:13:59,280 Speaker 2: account for fun and like your retirement savings at Fidelity, 277 00:13:59,559 --> 00:14:02,160 Speaker 2: and it is like, bring all your retirement savings over 278 00:14:02,200 --> 00:14:03,520 Speaker 2: to us, and we'll give you one percent of the 279 00:14:03,600 --> 00:14:07,360 Speaker 2: or three percent of them, Like yeah, why would you done? Right? 280 00:14:07,400 --> 00:14:09,679 Speaker 2: And if you're like relatively self directed in your retirement 281 00:14:09,720 --> 00:14:12,160 Speaker 2: savings or an ETFs anyway, like yeah, that's free money. 282 00:14:12,320 --> 00:14:13,839 Speaker 2: There's some lock up on it where you bring the 283 00:14:13,880 --> 00:14:15,480 Speaker 2: money over you you have to keep it at robin 284 00:14:15,520 --> 00:14:17,600 Speaker 2: Hood for a while. So right, it's it's part of 285 00:14:17,600 --> 00:14:20,320 Speaker 2: the strategy for them to go from being people's like 286 00:14:20,360 --> 00:14:23,200 Speaker 2: fun money play you know, shows confetti when you do 287 00:14:23,240 --> 00:14:26,040 Speaker 2: a trade account to being like their main you know, 288 00:14:26,600 --> 00:14:29,120 Speaker 2: savings and investment account. The other thing that I thought 289 00:14:29,160 --> 00:14:31,560 Speaker 2: was interesting about what they're doing is they're talking about 290 00:14:32,000 --> 00:14:36,240 Speaker 2: getting into building out a wealth management farmware. Instead of 291 00:14:36,720 --> 00:14:39,600 Speaker 2: just being self directed, they have some sort of advisory business. 292 00:14:39,600 --> 00:14:42,320 Speaker 2: And that's probably not like opening branches with people, but 293 00:14:42,360 --> 00:14:44,880 Speaker 2: it's like, yeah, you know, some sort of robo advising, 294 00:14:45,120 --> 00:14:47,680 Speaker 2: some sort of automated you know, AI driven advising where 295 00:14:48,240 --> 00:14:50,880 Speaker 2: if you are not a person who wants to watch 296 00:14:50,920 --> 00:14:52,800 Speaker 2: the markets all day and be on Reddit and like 297 00:14:52,840 --> 00:14:55,440 Speaker 2: sort of you know, do your own investing, but you 298 00:14:55,560 --> 00:15:00,160 Speaker 2: want someone to help you do your retirement planning. If 299 00:15:00,240 --> 00:15:02,560 Speaker 2: robin Hood can offer that, Like, that's just a ton 300 00:15:02,600 --> 00:15:04,880 Speaker 2: of assets that you know, have to be tied to 301 00:15:04,920 --> 00:15:05,760 Speaker 2: some sort of advice. 302 00:15:05,920 --> 00:15:08,400 Speaker 1: Yeah. They basically want to be like the one stop shop, 303 00:15:08,400 --> 00:15:08,760 Speaker 1: don't they. 304 00:15:08,840 --> 00:15:10,320 Speaker 2: Which is like but you know, with like Fidelity and 305 00:15:10,600 --> 00:15:12,320 Speaker 2: all these people like to have some roots and being 306 00:15:12,320 --> 00:15:14,400 Speaker 2: self directed discount brokrages, but they're all like, you know, 307 00:15:14,440 --> 00:15:17,040 Speaker 2: trying to help people, you know, give people advice on 308 00:15:17,080 --> 00:15:17,920 Speaker 2: their retirement accounts. 309 00:15:17,960 --> 00:15:19,840 Speaker 1: I should have looked into it. But don't they have 310 00:15:19,880 --> 00:15:20,880 Speaker 1: a credit card as well? 311 00:15:20,960 --> 00:15:22,160 Speaker 2: Or do you have a credit card? 312 00:15:22,200 --> 00:15:25,480 Speaker 1: Yeah, that's like good, yeah card Goldman have some painful 313 00:15:25,520 --> 00:15:28,160 Speaker 1: news about that this week. It seems hard to just 314 00:15:28,640 --> 00:15:29,640 Speaker 1: create a credit card. 315 00:15:29,800 --> 00:15:31,240 Speaker 2: I don't know if you have money market funds, Like 316 00:15:31,240 --> 00:15:33,280 Speaker 2: it's like a synergy there. I have to assume that 317 00:15:33,280 --> 00:15:35,320 Speaker 2: when robin had started, but you started from nothing, Like 318 00:15:35,760 --> 00:15:39,760 Speaker 2: there's so much opportunity in like showing people confetti when 319 00:15:39,800 --> 00:15:43,920 Speaker 2: they do trades, right, Like the pool of money that 320 00:15:43,960 --> 00:15:47,880 Speaker 2: you can extract by like helping people do fun trades 321 00:15:47,920 --> 00:15:50,640 Speaker 2: on their phone is enormous, right, And it is enormous, 322 00:15:50,680 --> 00:15:53,760 Speaker 2: but it's like, you know, it's a tiny fraction of 323 00:15:53,800 --> 00:15:56,560 Speaker 2: the pool of money from people like saving for retirement, right, 324 00:15:56,560 --> 00:15:58,080 Speaker 2: and so like, when you get big enough, you're like 325 00:15:58,200 --> 00:16:00,480 Speaker 2: the way to go to the next level of is 326 00:16:00,480 --> 00:16:02,880 Speaker 2: to get people's retirement money and not just their fund 327 00:16:02,920 --> 00:16:05,120 Speaker 2: trading money. Now, I will say the other thing about 328 00:16:05,120 --> 00:16:08,840 Speaker 2: the barecase of people graduating from meme stocks to retirement 329 00:16:08,840 --> 00:16:13,000 Speaker 2: funds is that Robinhood so far makes a lot of 330 00:16:13,000 --> 00:16:17,200 Speaker 2: its money on trading pad for order flow, right, And 331 00:16:18,240 --> 00:16:21,440 Speaker 2: two Sili's facts about that are one, if you are 332 00:16:21,520 --> 00:16:23,960 Speaker 2: just buying ets for retirement, you're not trading that often, right, 333 00:16:24,160 --> 00:16:27,040 Speaker 2: So Robinhood is getting less money from your buy and 334 00:16:27,080 --> 00:16:30,440 Speaker 2: hold investing than they are from your frantic day trading. 335 00:16:30,880 --> 00:16:33,760 Speaker 2: And then two where they get most of their money 336 00:16:33,920 --> 00:16:37,560 Speaker 2: from payment to order flow is options in crypto, Like 337 00:16:38,200 --> 00:16:41,440 Speaker 2: frantically trading stocks less good for them financially than frantically 338 00:16:41,440 --> 00:16:45,040 Speaker 2: trading options and crypto and buying and holding stocks even 339 00:16:45,040 --> 00:16:47,880 Speaker 2: worse than frantically trading stocks. So there is like a 340 00:16:48,120 --> 00:16:50,360 Speaker 2: margin compression as they go to the to the higher 341 00:16:50,360 --> 00:16:52,840 Speaker 2: dollar you know, retirement funds, but hopefully you make it 342 00:16:52,920 --> 00:16:53,480 Speaker 2: up on volume. 343 00:16:53,680 --> 00:16:56,560 Speaker 1: Yeah, another bare case that you could put in there, 344 00:16:56,640 --> 00:16:59,440 Speaker 1: and this falls more into the psychology category is we 345 00:16:59,520 --> 00:17:02,040 Speaker 1: might have moved passed this for Robinhood. But I was wondering, 346 00:17:02,160 --> 00:17:05,320 Speaker 1: you know, when we were watching the fantastic fall of 347 00:17:05,359 --> 00:17:08,480 Speaker 1: all these meme stocks and just so much money was 348 00:17:08,560 --> 00:17:13,320 Speaker 1: being destroyed of retail dollars, whether instead of graduating into 349 00:17:13,560 --> 00:17:16,760 Speaker 1: index funds, et cetera, whether or not people would just 350 00:17:16,760 --> 00:17:20,639 Speaker 1: get totally disenchanted and leave the market all together. But 351 00:17:21,240 --> 00:17:24,440 Speaker 1: it seems like that hasn't been too bad for robin Hood. 352 00:17:24,760 --> 00:17:27,000 Speaker 2: Yeah, I don't know. I mean, I think a lot 353 00:17:27,040 --> 00:17:31,040 Speaker 2: of people interpret memestocks as themselves a phenomenon of disenchantment, right, 354 00:17:31,040 --> 00:17:33,159 Speaker 2: where like people feel like they can't get ahead, and 355 00:17:33,160 --> 00:17:35,800 Speaker 2: so they put their money into gambles rather than like 356 00:17:35,840 --> 00:17:40,159 Speaker 2: investing it sensibly in index funds or whatever. Yeah, And 357 00:17:41,080 --> 00:17:44,760 Speaker 2: I don't know what comes after disenchantment with that, right, 358 00:17:44,800 --> 00:17:47,200 Speaker 2: Like I I think some people are like, I'm going 359 00:17:47,240 --> 00:17:50,560 Speaker 2: to stop gambling and start saving responsibly. Some people are like, 360 00:17:50,560 --> 00:17:53,040 Speaker 2: we're disenchanted before, and now they're extra disenchanted, right, I 361 00:17:53,080 --> 00:17:53,320 Speaker 2: don't know. 362 00:17:53,359 --> 00:17:55,800 Speaker 1: I feel like it has sort of played out with crypto, 363 00:17:56,119 --> 00:17:59,159 Speaker 1: Like I think that so many people lost money on crypto. 364 00:17:59,240 --> 00:18:02,040 Speaker 1: I'm talking about just like day traders lost money on 365 00:18:02,080 --> 00:18:05,280 Speaker 1: crypto because this time around with bitcoin got pretty close 366 00:18:05,280 --> 00:18:08,080 Speaker 1: to seventy thousand sometime in the past few weeks. It 367 00:18:08,200 --> 00:18:11,560 Speaker 1: just feels like Bitcoin at seventy thousand this time around 368 00:18:11,720 --> 00:18:14,800 Speaker 1: is a lot different than before, like the FTX collapse, 369 00:18:15,160 --> 00:18:18,720 Speaker 1: when I think that did disenchant a lot of the 370 00:18:18,760 --> 00:18:19,760 Speaker 1: retail community. 371 00:18:19,960 --> 00:18:22,199 Speaker 2: I agree, although then I want you to tell me 372 00:18:22,200 --> 00:18:24,040 Speaker 2: why bitkind is back in tewenty thousand. 373 00:18:24,280 --> 00:18:26,200 Speaker 1: I the podcast just ends. 374 00:18:28,359 --> 00:18:30,639 Speaker 2: No, I agree, But like this is my cryptos skepticism 375 00:18:30,680 --> 00:18:32,919 Speaker 2: coming out. Like go ahead, if you've got into crypto 376 00:18:33,000 --> 00:18:36,840 Speaker 2: for gambling and you got disenchanted and you stopped being 377 00:18:36,840 --> 00:18:39,720 Speaker 2: in crypto, like that's all like totally consistent, right, because 378 00:18:39,760 --> 00:18:41,480 Speaker 2: it's like should beat this out. But it's essentially a 379 00:18:41,480 --> 00:18:44,119 Speaker 2: gambling product, right, Like not all you know, like stayble 380 00:18:44,119 --> 00:18:46,879 Speaker 2: goo whatever, right, but like you know, like the stuff 381 00:18:46,880 --> 00:18:48,520 Speaker 2: that you see on like coin market cap is essentially 382 00:18:48,560 --> 00:18:50,800 Speaker 2: a gambling product, whereas like if you got into the 383 00:18:50,800 --> 00:18:54,280 Speaker 2: stock market for gambling, like that's a tiny, tiny fraction 384 00:18:54,359 --> 00:18:55,800 Speaker 2: of like why people are in the stock market of 385 00:18:55,800 --> 00:18:57,919 Speaker 2: what you can do this. It's mostly you're just like 386 00:18:58,400 --> 00:19:01,680 Speaker 2: you're investing in like the growing productive capacity of the world. Right, 387 00:19:01,680 --> 00:19:03,159 Speaker 2: Like that's what the stock market is, right, it is 388 00:19:03,160 --> 00:19:05,240 Speaker 2: like companies and like you have economic growth, so the 389 00:19:05,240 --> 00:19:08,719 Speaker 2: companies make more money and like that accrues to their shareholders. Right. So, like, 390 00:19:09,280 --> 00:19:11,720 Speaker 2: if you get into the stock market for gambling purposes 391 00:19:12,160 --> 00:19:14,240 Speaker 2: and there's a thing you can stay for that isn't 392 00:19:14,320 --> 00:19:17,440 Speaker 2: gambling purposes with cryptos, I'm not so sure that's true. 393 00:19:17,960 --> 00:19:19,840 Speaker 2: There are people in crypto are building good products blah 394 00:19:19,880 --> 00:19:21,880 Speaker 2: blah blah blah. Right, but if you're like buying the tokens, 395 00:19:22,000 --> 00:19:23,520 Speaker 2: you know, like there's a lot. Yeah, it's like hard 396 00:19:23,520 --> 00:19:24,480 Speaker 2: to invest in those. 397 00:19:24,320 --> 00:19:26,680 Speaker 1: Things anyway, that's that's in it for the tech. 398 00:19:26,760 --> 00:19:28,240 Speaker 2: But no, I mean, like, right, I agree, if you 399 00:19:28,280 --> 00:19:30,200 Speaker 2: get into memes stacks and you lose all your money 400 00:19:30,200 --> 00:19:33,680 Speaker 2: and you get disenchanted and you like decide that investing 401 00:19:33,680 --> 00:19:36,640 Speaker 2: in capitalism is bad, then like that is probably bad 402 00:19:36,680 --> 00:19:39,000 Speaker 2: for your net worth. The popular perception of memes tax 403 00:19:39,080 --> 00:19:40,840 Speaker 2: is like they got into memestacks because they thought investing 404 00:19:40,840 --> 00:19:43,800 Speaker 2: in capitalism was bad. So like you know, yeah, the 405 00:19:43,840 --> 00:19:46,720 Speaker 2: disenchantment will maybe point them in the in a better direction. 406 00:19:47,760 --> 00:19:48,280 Speaker 2: Cut all of this. 407 00:19:48,480 --> 00:19:51,600 Speaker 1: No, this is good, I will say, I mean we're 408 00:19:51,640 --> 00:19:56,000 Speaker 1: talking about Robin Hood's ambitions to become this one stop 409 00:19:56,000 --> 00:19:58,359 Speaker 1: shop and you know, grow up a little bit. It 410 00:19:58,440 --> 00:20:02,159 Speaker 1: is for context good to point out that Charles Schwab 411 00:20:02,200 --> 00:20:06,320 Speaker 1: Fidelity they have ten trillion and fourteen trillion in total 412 00:20:06,359 --> 00:20:10,080 Speaker 1: assets respectively. Robin Hood is clocking it at one hundred 413 00:20:10,119 --> 00:20:13,280 Speaker 1: and forty three point six billion dollars in assets as 414 00:20:13,280 --> 00:20:15,359 Speaker 1: of the end of the second quarter. So it's a 415 00:20:15,359 --> 00:20:16,240 Speaker 1: long hill to climb. 416 00:20:16,720 --> 00:20:20,800 Speaker 2: It's an intriguing strategy of like being the like salient 417 00:20:21,359 --> 00:20:23,800 Speaker 2: fun brokerage and then trying to pivot from there to 418 00:20:23,840 --> 00:20:25,760 Speaker 2: being like the next Schwab. Like, I don't know, it 419 00:20:25,840 --> 00:20:27,480 Speaker 2: strikes me is like a reasonable thing to do and 420 00:20:27,520 --> 00:20:28,160 Speaker 2: like kind of cool. 421 00:20:28,400 --> 00:20:30,040 Speaker 1: Yeah, I don't know, but yeah, you're right if I 422 00:20:30,080 --> 00:20:31,160 Speaker 1: was a CEO, Like by. 423 00:20:31,040 --> 00:20:32,159 Speaker 2: The way, you're like, yeah, they have a long way 424 00:20:32,200 --> 00:20:34,080 Speaker 2: to go, Like yeah, they have like one hundred times 425 00:20:34,160 --> 00:20:36,200 Speaker 2: upsided assets. Like that sounds like a pretty good position 426 00:20:36,240 --> 00:20:36,359 Speaker 2: to you. 427 00:20:36,480 --> 00:20:38,480 Speaker 1: I wonder if it's an easier pivot to make to 428 00:20:38,600 --> 00:20:40,879 Speaker 1: like be the fun investment firm and then try to 429 00:20:40,880 --> 00:20:42,960 Speaker 1: become the mature one versus like, you know. 430 00:20:43,160 --> 00:20:47,440 Speaker 2: Much easier. Can you imagine Fidelity be likeah, we've got confetti. 431 00:20:47,000 --> 00:20:49,560 Speaker 1: Right, hey, fellow kids. Right, Yeah, it's. 432 00:20:49,359 --> 00:20:51,639 Speaker 2: So much easier. It's so much here because also like 433 00:20:51,840 --> 00:20:53,679 Speaker 2: age moves in a direction, right, Like if you if 434 00:20:53,680 --> 00:20:55,040 Speaker 2: you're like a twenty three year old, then you start 435 00:20:55,080 --> 00:20:56,600 Speaker 2: on robin and then you become like a thirty three 436 00:20:56,640 --> 00:20:58,359 Speaker 2: year old and you're still on robin hood. Yeah, I'm 437 00:20:58,359 --> 00:21:01,439 Speaker 2: gonna save for retirement, right, whereas like Fidelity is like 438 00:21:01,520 --> 00:21:04,160 Speaker 2: average you know, account holder is older. 439 00:21:04,240 --> 00:21:05,240 Speaker 1: Like they're not gonna. 440 00:21:05,000 --> 00:21:07,240 Speaker 2: They're not gonna be like maybe they have like a 441 00:21:07,320 --> 00:21:09,399 Speaker 2: midlife crisis and get into memes like gambling, but like 442 00:21:09,440 --> 00:21:11,440 Speaker 2: you know, it's a better move to start to hook 443 00:21:11,480 --> 00:21:12,919 Speaker 2: them young and then sort of grow up a lot. 444 00:21:13,080 --> 00:21:30,760 Speaker 1: So true. Yeah, it's like me with tail Or, Swift ESG, 445 00:21:31,280 --> 00:21:36,040 Speaker 1: Naughty ESG, wisdom Tree. I'm not wrapping, uh, but wisdom 446 00:21:36,080 --> 00:21:40,480 Speaker 1: Tree was fined four million dollars for miss marketing. They're ESG. 447 00:21:40,680 --> 00:21:44,040 Speaker 1: Do you have a selection of them in the world. 448 00:21:44,359 --> 00:21:46,280 Speaker 2: A lot of people are worried about greenwashing, right, Like 449 00:21:46,280 --> 00:21:50,000 Speaker 2: there's this idea that people market ESG products funds or 450 00:21:50,880 --> 00:21:53,480 Speaker 2: market their companies of the s year or whatever, and 451 00:21:53,560 --> 00:21:55,520 Speaker 2: like they don't really mean it and they're doing bad stuff. 452 00:21:55,520 --> 00:21:57,840 Speaker 2: They're like you know, secretly doing coal or whatever. 453 00:21:57,880 --> 00:22:01,080 Speaker 1: They might have a point, so what they have a point, sure. 454 00:22:00,960 --> 00:22:03,040 Speaker 2: But like two, I think most people get mad about that, 455 00:22:03,080 --> 00:22:05,840 Speaker 2: would like someone to police that according to their own 456 00:22:05,880 --> 00:22:08,000 Speaker 2: beliefs about ESG. Right, So, like you know, people get 457 00:22:08,000 --> 00:22:09,879 Speaker 2: mad at like black Rock for having ESG funds that 458 00:22:09,920 --> 00:22:12,720 Speaker 2: like sometimes vote for the directors of call companies or whatever, right, 459 00:22:12,960 --> 00:22:14,520 Speaker 2: and like people like, oh, they shouldn't do that, And 460 00:22:14,800 --> 00:22:17,040 Speaker 2: you know, it's like it turns out there's no like 461 00:22:17,720 --> 00:22:20,280 Speaker 2: single accepted standard for what is ESG or like what 462 00:22:20,320 --> 00:22:23,119 Speaker 2: an ESG fund should do, and so different issues of 463 00:22:23,320 --> 00:22:26,520 Speaker 2: ESG funds have different opinions and they do different things, 464 00:22:26,720 --> 00:22:29,360 Speaker 2: And if you have like a strict view, then you'll 465 00:22:29,400 --> 00:22:33,120 Speaker 2: be mad at like ESG issuers who have less strict views. 466 00:22:33,480 --> 00:22:35,800 Speaker 2: And there's like nothing you can do about it. I mean, 467 00:22:35,840 --> 00:22:37,320 Speaker 2: you can like put your money at a different fund, 468 00:22:37,520 --> 00:22:39,840 Speaker 2: but like the SEC is not going to say to 469 00:22:40,440 --> 00:22:43,119 Speaker 2: a big ESG fund what you were doing is not 470 00:22:43,400 --> 00:22:46,080 Speaker 2: ESG because like the SEC doesn't like have a substance 471 00:22:46,080 --> 00:22:48,879 Speaker 2: of definition of what ESG is. Yeah, and you can 472 00:22:48,960 --> 00:22:51,439 Speaker 2: imagine that changing, but like not really in like the 473 00:22:51,440 --> 00:22:54,679 Speaker 2: current state of American politics and SEC rulemaking, it's just 474 00:22:54,720 --> 00:22:57,040 Speaker 2: going to be ESG is like this sort of like 475 00:22:57,359 --> 00:23:01,280 Speaker 2: somewhat like voluntarily defined concept. But what the SEC can 476 00:23:01,359 --> 00:23:05,400 Speaker 2: do is look at every ESU firm's definition of ESG 477 00:23:05,960 --> 00:23:09,120 Speaker 2: and see if they're following it. And it turns out 478 00:23:09,160 --> 00:23:11,199 Speaker 2: a lot of them aren't. And the reason they're not, 479 00:23:11,240 --> 00:23:13,879 Speaker 2: by the way, is like SG ETFs where like they 480 00:23:13,920 --> 00:23:16,040 Speaker 2: you know, it's like fairly low expense ratio and like 481 00:23:16,200 --> 00:23:18,960 Speaker 2: they don't have a huge staff of people, you know, 482 00:23:19,000 --> 00:23:21,439 Speaker 2: investigating everything. They buy data from data vendors, and like 483 00:23:21,480 --> 00:23:23,280 Speaker 2: sometimes they mess it up and then they don't do 484 00:23:23,480 --> 00:23:25,199 Speaker 2: ESG things, but they don't do what they said. So 485 00:23:25,200 --> 00:23:27,360 Speaker 2: Wisdom tre you got in trouble. I had this ESG 486 00:23:27,640 --> 00:23:32,879 Speaker 2: ETFs and it described them in fairly strict terms, you know, 487 00:23:32,880 --> 00:23:35,520 Speaker 2: instead of some of them like they don't invest in 488 00:23:35,600 --> 00:23:39,119 Speaker 2: companies that have any involvement in fossil fuels or tobacco, 489 00:23:39,400 --> 00:23:41,840 Speaker 2: like regardless of how much revenue they get from if 490 00:23:41,840 --> 00:23:44,879 Speaker 2: they have any involvement, they are screened out. And the 491 00:23:44,920 --> 00:23:46,399 Speaker 2: way they did that is like they went to some 492 00:23:46,480 --> 00:23:49,520 Speaker 2: data vendors and they bought lists of companies that do 493 00:23:49,600 --> 00:23:52,160 Speaker 2: things right, and like the lists were not quite right 494 00:23:52,200 --> 00:23:55,119 Speaker 2: for the thing they described. So they bought lists of 495 00:23:55,160 --> 00:23:58,280 Speaker 2: companies that were involved in tobacco. Lots of like big 496 00:23:58,320 --> 00:24:00,800 Speaker 2: stores carry cigarettes, right, and like the cigarettes make up 497 00:24:00,880 --> 00:24:03,080 Speaker 2: you know, one percent of revenue or whatever, like they 498 00:24:03,119 --> 00:24:07,320 Speaker 2: are on the shelves, And the data vendor would only 499 00:24:07,359 --> 00:24:09,720 Speaker 2: flag a company of retailer if more than ten percent 500 00:24:09,760 --> 00:24:13,760 Speaker 2: of its revenue came from cigarettes, and so like most retailers, 501 00:24:13,960 --> 00:24:16,479 Speaker 2: that's not the case. And so they weren't flagged. And 502 00:24:16,560 --> 00:24:18,960 Speaker 2: so the SEC looked and Wisdom true was investing in 503 00:24:19,000 --> 00:24:21,199 Speaker 2: some of these in some retailers that like you know, 504 00:24:21,320 --> 00:24:23,919 Speaker 2: sold some cigarettes, and they said in their materials they 505 00:24:23,920 --> 00:24:25,919 Speaker 2: didn't invest in companies that sold cigarettes, and I was like, 506 00:24:26,119 --> 00:24:27,480 Speaker 2: you did not do the thing you said you were 507 00:24:27,520 --> 00:24:29,920 Speaker 2: going to do because of like a data error. Right, 508 00:24:30,359 --> 00:24:32,959 Speaker 2: they said, we wouldn't invest in fossil fuels, and so 509 00:24:33,000 --> 00:24:35,080 Speaker 2: they bought the list of the data vendor that's like 510 00:24:35,600 --> 00:24:38,600 Speaker 2: listed companies in the energy sector. And then like it 511 00:24:38,640 --> 00:24:41,440 Speaker 2: turns out they're investing in like railroads that transported coal. 512 00:24:41,560 --> 00:24:44,679 Speaker 2: So they got in trouble for that. So that's like 513 00:24:44,760 --> 00:24:47,880 Speaker 2: the level of policing of greenwashing that the SEC could 514 00:24:47,920 --> 00:24:51,600 Speaker 2: do is like if you say something and you don't 515 00:24:51,760 --> 00:24:55,119 Speaker 2: do that due to like laziness or like buying the 516 00:24:55,160 --> 00:24:57,480 Speaker 2: wrong data set, then you'll get in trouble. 517 00:24:57,600 --> 00:25:00,199 Speaker 1: Yeah. I do like that. The defense is probably like, well, 518 00:25:00,200 --> 00:25:02,320 Speaker 1: it's just a little bit of cigarettes. You know, if 519 00:25:02,320 --> 00:25:05,280 Speaker 1: I have one cigarette a month, it's not that bad. 520 00:25:05,640 --> 00:25:07,880 Speaker 2: Right, I mean like, I mean like they've been missed 521 00:25:07,880 --> 00:25:11,320 Speaker 2: in tobacco companies like Drugstars. That's old cigarettes. 522 00:25:11,400 --> 00:25:13,439 Speaker 1: Yeah. I also think it's interesting, And this was a 523 00:25:13,480 --> 00:25:16,280 Speaker 1: point raised by my colleague wil Donna Hirich that you know, 524 00:25:16,320 --> 00:25:19,800 Speaker 1: wisdom Tree was fined here four million dollars not necessarily 525 00:25:19,840 --> 00:25:21,680 Speaker 1: the third party data provider. 526 00:25:21,800 --> 00:25:24,000 Speaker 2: Well, I'm my impression is that the data provider actually, 527 00:25:24,040 --> 00:25:26,320 Speaker 2: for the most part, accurately described data. 528 00:25:27,440 --> 00:25:30,399 Speaker 1: Like the ETF description and prospectives didn't match up with 529 00:25:30,440 --> 00:25:31,440 Speaker 1: the data that they would buy. 530 00:25:31,480 --> 00:25:34,000 Speaker 2: They were they weren't like buying an index. They were like, 531 00:25:34,040 --> 00:25:35,800 Speaker 2: we're excluding companies that do this. And then the way 532 00:25:35,800 --> 00:25:37,760 Speaker 2: they excluded companies that did that is like going to 533 00:25:37,760 --> 00:25:39,720 Speaker 2: a data provider and saying what companies do this, So 534 00:25:39,760 --> 00:25:41,640 Speaker 2: it was like it was like the data provider's name 535 00:25:41,680 --> 00:25:42,360 Speaker 2: was on the ETF. 536 00:25:42,520 --> 00:25:43,720 Speaker 1: Yeah, that's interesting. 537 00:25:43,880 --> 00:25:45,840 Speaker 2: The tobacco stuff. I'm actually I'm not sure if they 538 00:25:45,840 --> 00:25:47,160 Speaker 2: got it right. But like for in general, the data 539 00:25:47,160 --> 00:25:50,359 Speaker 2: providers accurately described what was going on. Yeah, and Wisdom 540 00:25:50,400 --> 00:25:51,880 Speaker 2: Tree just bought their own data. 541 00:25:51,960 --> 00:25:54,080 Speaker 1: I've never smoked a cigarette. Just so everyone is clear, 542 00:25:54,359 --> 00:25:56,399 Speaker 1: it is interesting. This kind of tracks with what we 543 00:25:56,400 --> 00:25:57,119 Speaker 1: were talking about. 544 00:25:57,200 --> 00:25:59,520 Speaker 2: I swear this podcast is basically for Katie's parents. 545 00:25:59,840 --> 00:26:03,359 Speaker 1: I've never spoked his cigarette. I swear to God, I believe. Anyway, 546 00:26:03,440 --> 00:26:07,480 Speaker 1: moving swiftly along, this is similar to what we were 547 00:26:07,520 --> 00:26:09,639 Speaker 1: talking about a couple of weeks ago. You were saying 548 00:26:09,640 --> 00:26:13,080 Speaker 1: that the SEC won't define ESG. It really is the 549 00:26:13,119 --> 00:26:14,960 Speaker 1: same for all principles based. 550 00:26:15,160 --> 00:26:19,119 Speaker 2: We talked about the Biblical we were talking about JWWJD, what. 551 00:26:19,240 --> 00:26:24,040 Speaker 1: John do and how they were Bible washing. I think 552 00:26:24,080 --> 00:26:26,240 Speaker 1: about that all the time. Yes, it's a great phrase, 553 00:26:26,640 --> 00:26:29,720 Speaker 1: but yeah, principles based investing it's hard to define, but 554 00:26:29,800 --> 00:26:32,720 Speaker 1: it seems easy to run a foulve of doing what 555 00:26:32,760 --> 00:26:33,359 Speaker 1: you said right. 556 00:26:33,440 --> 00:26:35,080 Speaker 2: No, I mean like in the general case, like you 557 00:26:35,119 --> 00:26:37,600 Speaker 2: can't define principles best investing because you could have any 558 00:26:37,600 --> 00:26:39,840 Speaker 2: set up principles you want. It's just the SEC is 559 00:26:39,880 --> 00:26:42,240 Speaker 2: going to check up on your principles. One gets the 560 00:26:42,280 --> 00:26:46,200 Speaker 2: sense that the SEC as an institution sort of likes 561 00:26:46,640 --> 00:26:49,600 Speaker 2: some sort of ESG principles and would like investors to 562 00:26:49,680 --> 00:26:53,120 Speaker 2: invest in things that are environmentally and socially and governance minded. Right. 563 00:26:53,280 --> 00:26:56,640 Speaker 2: That's why the SEC has proposed rules back climate change disclosure, 564 00:26:56,720 --> 00:26:58,800 Speaker 2: not just because it thinks the disclosure is interesting, but 565 00:26:58,840 --> 00:27:02,600 Speaker 2: because it thinks in might like to invest in greener 566 00:27:02,600 --> 00:27:06,120 Speaker 2: companies and avoid maybe browner companies. I get the ounce 567 00:27:06,160 --> 00:27:08,840 Speaker 2: I could be wrong that the SEC is less interested 568 00:27:09,359 --> 00:27:12,680 Speaker 2: in biblically based investing, and the SEC doesn't think that 569 00:27:13,560 --> 00:27:16,479 Speaker 2: investors should try to avoid companies that contribute to like 570 00:27:16,960 --> 00:27:17,920 Speaker 2: gar Right's charities. 571 00:27:18,000 --> 00:27:21,320 Speaker 1: Right, speculation, Yeah, one might think that speculation. 572 00:27:20,880 --> 00:27:22,679 Speaker 2: But the SEC, like doesn't get to choose, right. The 573 00:27:22,760 --> 00:27:25,280 Speaker 2: SEC just looks at your list of principles and says, 574 00:27:25,520 --> 00:27:27,879 Speaker 2: did you buy the right data? Is that to adhere 575 00:27:27,880 --> 00:27:30,960 Speaker 2: to your list of principles? And sometimes with both ESG 576 00:27:31,040 --> 00:27:33,399 Speaker 2: and with biblically based investing in the answers now and 577 00:27:33,400 --> 00:27:36,760 Speaker 2: then the SEC finds you. It's like a non substance. 578 00:27:36,760 --> 00:27:39,040 Speaker 2: It's just like going around checking the boxes. It's not 579 00:27:39,119 --> 00:27:42,000 Speaker 2: like interested in the substance of the things. 580 00:27:41,880 --> 00:27:44,320 Speaker 1: I will say, it's been kind of fun to watch. 581 00:27:44,400 --> 00:27:48,520 Speaker 1: There is this like big demand for ESG, or at 582 00:27:48,600 --> 00:27:50,880 Speaker 1: least you know, a lot of these fund companies would 583 00:27:50,920 --> 00:27:52,919 Speaker 1: tell you that there was all this fantastic demand, but 584 00:27:52,960 --> 00:27:55,240 Speaker 1: I think that they just wanted to launch products because 585 00:27:55,520 --> 00:27:57,199 Speaker 1: now you have a lot of ESG funds that have 586 00:27:57,240 --> 00:27:59,879 Speaker 1: been closing. That's the case in the US. 587 00:28:00,040 --> 00:28:01,800 Speaker 2: It was a lot of demand, and I don't know, 588 00:28:02,240 --> 00:28:04,600 Speaker 2: I think it was all backlash. 589 00:28:04,560 --> 00:28:10,359 Speaker 1: Backlash, back, a huge backla, backlash, backlash. Maybe there was demands. 590 00:28:10,160 --> 00:28:12,480 Speaker 2: Backlash, demands with rhymes of black rocks them. 591 00:28:13,880 --> 00:28:16,360 Speaker 1: I don't know. I think that a lot of fun 592 00:28:16,440 --> 00:28:19,919 Speaker 1: companies launched a lot of VSG products because it was 593 00:28:19,920 --> 00:28:23,159 Speaker 1: in vogue, and then the demands maybe wasn't there to 594 00:28:23,240 --> 00:28:25,880 Speaker 1: the way that maybe some of those fun companies thought 595 00:28:25,880 --> 00:28:26,400 Speaker 1: there would be. 596 00:28:26,520 --> 00:28:28,639 Speaker 2: Yeah, it was in vogue among fun companies, and I 597 00:28:28,640 --> 00:28:30,960 Speaker 2: think there was a sense that like you're getting ahead 598 00:28:31,000 --> 00:28:34,080 Speaker 2: of the giant wave of demand that was coming, and 599 00:28:34,720 --> 00:28:36,080 Speaker 2: that wave was not quite coming out. 600 00:28:36,160 --> 00:28:38,400 Speaker 1: I have a parallel to make sure well, first of all, 601 00:28:38,440 --> 00:28:41,719 Speaker 1: you're seeing hundreds and hundreds of VSG funds shutter now 602 00:28:41,800 --> 00:28:44,040 Speaker 1: both in the US and in Europe. It's sort of 603 00:28:44,040 --> 00:28:47,160 Speaker 1: similar to how all of these automakers were like, we 604 00:28:47,360 --> 00:28:51,800 Speaker 1: are going to phase out internal combustion engines and pivot 605 00:28:51,800 --> 00:28:55,040 Speaker 1: to EV's, and a lot of these legacy automakers have 606 00:28:55,400 --> 00:28:57,640 Speaker 1: had to take a lot of losses because the EV 607 00:28:57,760 --> 00:29:00,640 Speaker 1: demand isn't really there, And of course when it comes 608 00:29:00,680 --> 00:29:03,880 Speaker 1: to that, it's probably a combination of range anxiety, the 609 00:29:04,000 --> 00:29:07,320 Speaker 1: charging infrastructure in the United States isn't quite there. Evs 610 00:29:07,720 --> 00:29:11,280 Speaker 1: are more expensive for now the normal cars, But you 611 00:29:11,320 --> 00:29:14,080 Speaker 1: could draw a lot of parallels to the ESG fund space. 612 00:29:14,480 --> 00:29:17,040 Speaker 2: I think that like ESG investing is so interesting because 613 00:29:17,320 --> 00:29:20,800 Speaker 2: part of the thesis for ESG investing is we're gonna 614 00:29:20,840 --> 00:29:24,760 Speaker 2: avoid fossil fuels because in the future there will be 615 00:29:24,840 --> 00:29:27,960 Speaker 2: such public backlash against fossil fuels that it will be 616 00:29:28,240 --> 00:29:31,680 Speaker 2: impossible for fossil fuel companies to be profitable. There will 617 00:29:31,720 --> 00:29:34,920 Speaker 2: be regulation stopping them, will be you know, carbon taxes, 618 00:29:34,920 --> 00:29:37,120 Speaker 2: there'll be something that makes it uneconomical to run a 619 00:29:37,160 --> 00:29:40,840 Speaker 2: fossil fuel company. And to have that investing thesis, you 620 00:29:40,880 --> 00:29:42,600 Speaker 2: have to have this like view of the future of 621 00:29:42,600 --> 00:29:45,480 Speaker 2: public opinion that's like really quite stark, right, Yeah, you 622 00:29:45,480 --> 00:29:48,320 Speaker 2: see the same thing here. If you're an automaker and 623 00:29:48,360 --> 00:29:52,240 Speaker 2: you're talking to like your shareholders, who are investment firms 624 00:29:52,280 --> 00:29:54,120 Speaker 2: that are launching a lot of es CHIEF funds. There's 625 00:29:54,120 --> 00:29:58,440 Speaker 2: this like widespread view of like the consumer demand for 626 00:29:58,520 --> 00:30:01,200 Speaker 2: clean energy and you know avoiding fossil fuels is going 627 00:30:01,240 --> 00:30:03,360 Speaker 2: to be so strong in the future that like you'll 628 00:30:03,360 --> 00:30:06,120 Speaker 2: need to have a robust ev business or like you'll 629 00:30:06,160 --> 00:30:08,000 Speaker 2: need to have a lot of ESG funds and like 630 00:30:08,120 --> 00:30:10,680 Speaker 2: you know eviens for that was kind of it was 631 00:30:10,680 --> 00:30:13,000 Speaker 2: like a little bit wishful thinking about ESG investors, and 632 00:30:13,480 --> 00:30:17,240 Speaker 2: it turns out that the rejections about like future consumer 633 00:30:17,280 --> 00:30:18,320 Speaker 2: demand or not. Right. 634 00:30:20,080 --> 00:30:22,520 Speaker 1: There's so much more to say, Matt, But I actually 635 00:30:22,520 --> 00:30:24,400 Speaker 1: literally have to go get the oil on my car 636 00:30:24,480 --> 00:30:27,680 Speaker 1: change right now. It's not electric. That was a choice 637 00:30:28,080 --> 00:30:29,920 Speaker 1: I made because I don't know where I would charge it. 638 00:30:30,560 --> 00:30:39,080 Speaker 2: There you go, and that was the Money Stuff Podcast. 639 00:30:39,200 --> 00:30:41,240 Speaker 1: I'm Matt Levian and I'm Katie Greifeld. 640 00:30:41,560 --> 00:30:43,640 Speaker 2: You can find my work by subscribing to the Money 641 00:30:43,640 --> 00:30:45,960 Speaker 2: Stuff newsletter on Bloomberg dot com. 642 00:30:45,680 --> 00:30:48,120 Speaker 1: And you can find me on Bloomberg TV every day 643 00:30:48,200 --> 00:30:51,280 Speaker 1: on Open Interest between nine to eleven Am Eastern. 644 00:30:51,680 --> 00:30:53,360 Speaker 2: We'd love to hear from you. You can send an 645 00:30:53,400 --> 00:30:56,520 Speaker 2: email to money Pot at bloomberg dot net, ask us 646 00:30:56,560 --> 00:30:58,080 Speaker 2: a question and we might answer it on air. 647 00:30:58,600 --> 00:31:00,760 Speaker 1: You can also subscribe to our show wherever you're listening 648 00:31:00,840 --> 00:31:02,840 Speaker 1: right now and leave us a review. It helps more 649 00:31:02,880 --> 00:31:03,760 Speaker 1: people find the show. 650 00:31:04,440 --> 00:31:07,240 Speaker 2: The Money Stuff Podcast is produced by Anna Maserakus and 651 00:31:07,280 --> 00:31:10,240 Speaker 2: Moses and and special thanks this week to cal Brooks. 652 00:31:10,960 --> 00:31:13,080 Speaker 1: Our theme music was composed by Blake Maples. 653 00:31:13,320 --> 00:31:15,600 Speaker 2: Brandon Francis Newnham is our executive. 654 00:31:15,200 --> 00:31:17,960 Speaker 1: Producer, and Stage Bauman is Bloomberg's head of podcasts. 655 00:31:18,240 --> 00:31:20,560 Speaker 2: Thanks for listening to The Money Stuff Podcast. We'll be 656 00:31:20,640 --> 00:31:22,160 Speaker 2: back next week with more stuff. 657 00:31:30,520 --> 00:31:33,000 Speaker 1: Thanks for listening to The Money Stuff Podcast. If you 658 00:31:33,120 --> 00:31:35,320 Speaker 1: never want to miss a story, become a bloomberg dot 659 00:31:35,320 --> 00:31:38,760 Speaker 1: com subscriber today. Check out our special intro offer right 660 00:31:38,800 --> 00:31:42,120 Speaker 1: now at bloomberg dot com Slash Podcast Offer, or click 661 00:31:42,160 --> 00:31:44,520 Speaker 1: the link in our show notes. You'll also unlock deep 662 00:31:44,520 --> 00:31:47,560 Speaker 1: reporting data and analysis from reporters around the world.