22 March 2018

Banks Get Creative in Cutting Broker Pay

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Matt Levine, BloombergView:

“One way to make money providing financial services is to charge an explicit fee, commission, spread, etc., where the customer knows what she's paying you. Another way is to structure a product to be profitable to you in expectation, in a way that is not transparent to the customer. You can mix and match, but stereotypically, you make less money when the customer knows what you're making than when she doesn't. Because you're probably making more than the customer wants you to make. You are overpaid, is what I'm saying here, and your customer either does or does not know it.

This is fairly obvious, and so banks often prefer non-transparent businesses to straightforward fee-based businesses. Here is a delightful Financial Times article about banks trying out that theory on their own employees…”

Click here for the full blog posting along with links to the original article.

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