A reader writes in, asking:
“I’m a bit of a late starter, financially speaking. I am in my late 30′s but only now beginning to learn in earnest about personal finance. One challenge I have run into is that I cannot tell who is giving good information and who is just selling me something. Where would you recommend looking for unbiased financial and investing information?”
The short answer is that nobody in the financial services industry (or financial publishing industry) is an unbiased source of information.
With regard to advisors, the most obvious conflicts of interest are created by a commission pay structure. Commission-paid advisors have a strong incentive to steer you toward insurance products and mutual funds that pay a commission, rather than low-cost index funds that do not pay a commission.
But other advisors have conflicts of interest too.
- Advisors paid as a percentage of assets under management have an incentive to maximize your portfolio size, even when doing something else (e.g., spending the portfolio down to pay off your mortgage, delay Social Security, or buy a lifetime annuity) may be in your best interest;
- Advisors who charge a fixed periodic retainer (e.g., a flat $X quarterly fee) have an incentive to gather a lot of assets while doing the least work possible on each portfolio, even when it may be beneficial to the client to pay somewhat more attention to it; and
- Advisors who charge an hourly fee have an incentive to make things more complicated than they really need to be. (And all advisors have an incentive to make investing appear more complicated than it really is.)
Financial publications (and their writers) have conflicts of interest as well.
- Most financial publications make the majority of their revenue from advertising. As a result, they’re often reluctant to publish articles explaining exactly how bad certain financial products are.
- And every financial publication (including this one!) has an incentive to convince you of the importance of each topic being discussed. We need you to keep visiting our sites, buying our books, paying subscription fees, etc.
Even academic research can’t be assumed to be conflict-free. In many cases, the research is funded by a company with a product to sell. (For instance, many pieces of research regarding annuities have been funded by insurance companies.)
Of course, this doesn’t mean that none of these sources are helpful. Advisors, financial publications, and academic studies can all be very helpful. But it’s critical to be aware of the conflicts involved so that you know how the information you are encountering might be slanted.
So Where Can You Get Unbiased Information?
About the only way to get truly unbiased information is to get it from somebody who makes their living in a completely different field. For example, your neighbor who works as a software developer has little reason to convince you to make one investment decision as opposed to another. Of course, the problem is that, in most cases, such sources not only lack conflicts of interest, they also lack expertise.
As far as unbiased sources that are still knowledgable, something like the Bogleheads forum is about the closest you can get. Most people there do not work in the financial industry at all and therefore have nothing to gain from convincing you of one course of action over another. That said, even there it is important to be careful. Most people are anonymous, so it can be hard to know how much faith to put in any one person’s information or opinions. Also, some people there do actually have conflicts of interest (specifically, those of us who work in any of the types of positions mentioned above).