Personal finance journalism: Meeting the challenge of “expert” bias
How many times have you read a personal finance article in a major magazine or newspaper and tossed it on the table in disappointment. Or watched a show from a financial “superstar” such as Suzi Orman and turned off the TV in disgust. Sadly, much of what purports to be financial advice in the media or on the Internet is inaccurate, biased, and self-serving. But occasionally one finds content that’s worthwhile, especially because it offers a contrarian perspective that sparks new ideas about an issue. The Motley Fool site does just that.
A case in point is an article it ran a few years ago called “The 10 Habits of a Good Financial Advisor.” Any consumer who read that article was forced to think hard about whom to hire as an advisor — and was able to ask that advisor challenging questions. Here are the 10 habits or advisor characteristics the author urged consumers to look for:
- Your advisor acts as a fiduciary at all times, whether by law or by principle.
- Your advisor charges a standard fee for services rendered (as opposed to commissions).
- Your advisor fully discloses, in writing, his experience, conflicts of interest, and compensation up-front.
- Your advisor considers the big picture of your financial situation before advising on products or recommending specific actions.
- Your advisor holds the Certified Financial Planner designation, a bachelor's or master's degree in financial planning, or another substantial certification.
- Your advisor is experienced.
- Your advisor follows a process for discerning your needs and offering recommendations.
- Your advisor has a clean regulatory record or a plausible explanation for prior citations.
- Your advisor is a member of a leading professional organization.
- Your advisor embraces continuing education and attends conferences.
Now, many of these points are just common sense that any advisor could wholeheartedly support, especially things like being experienced and having no black marks on your regulatory record. But others betray a bias toward a certain kind of advisor — for example, toward a fiduciary-standard RIA, a fee-only NAPFA member, a transparency-driven advisor, an investment-analyst type advisor — as opposed to a commissioned salesperson such as a life insurance agent or securities broker.
Advisors in those latter camps might rightly respond they are not legally required to be a fiduciary (at least not yet anyway). Or they might argue there’s nothing inherently wrong with accepting commissions as long as they adhere to regulations, especially those relating to product suitability. And they might object to being expected to disclose their commissions and conflicts up front, something required of investment advisors, but again, not of securities reps and insurance agents.
But here’s the problem. When consumers read such an article, they believe what they read and actually use the points when searching for an advisor. They have no clue about the nuances of being life licensed vs. being an investment advisor vs. being a securities broker. So when a life agent says he’s not a fiduciary in a legal sense, the consumer will immediately become suspicious. Even though the author suggests that being a fiduciary in principle only is acceptable, that will probably come across as suspect.
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