In a recent article about conflicts of interest and financial advice, I wrote the following:
We [bloggers] make money recommending companies that have affiliate programs. For example, I earn a commission if you open an account at Scottrade through one of my links. I earn nothing if you open an account at Vanguard. Similarly, it’s more profitable for me to recommend Ally Bank than Bank of America.
Apparently Ally Bank didn’t like that.
Within just a few hours of publishing that post, I received the following email from my account manager with the affiliate network that manages Ally Bank’s affiliate program:
[Ally Bank is] not pleased with the insinuation that they “payoff” affiliates for recommendations on publishers sites. They want you to modify the language to make it clear that they do not pay affiliates to recommend Ally Bank, however Ally Bank pays affiliates to place their ads on their sites. Ally Bank is concerned that this language may come off wrong to customers.
I don’t have a problem with a company paying salespeople a commission to sell their product. I do have a problem with a company trying to keep that fact a secret.
Ads or Recommendations?
In my opinion, Ally’s position that they pay for advertisements rather than recommendations is nonsense.* The “ads” in question do not pay a flat rate per month. Nor do they pay per pageview or whenever a visitor clicks on the “ad.”
Instead, we’re talking about an arrangement in which Ally Bank pays a commission to a web publisher whenever a visitor clicks a link from the publisher’s site to Ally’s site and opens an account.
When you pay a commission, what do you get? You get people to sell your product. Paying a commission is the very essence of paying people to recommend your product.
Ally Bank pays for recommendations, and that’s exactly what Ally Bank gets. (If you don’t believe me, Google “Ally Bank review” and see if you can find a negative review anywhere in sight.)
Don’t Believe Everything You Read
I bring this up not because I have any ill will toward Ally. In fact, as a customer, I’m quite happy with their services, and I plan to keep my own money market account there.
Rather, I bring it up because I think it’s important to know that what you read online is often influenced by behind-the-scenes payments. Ads don’t stay nicely segregated in the sidebar, header, and footer of a site. Often, they’re the content itself.
*From a legal/regulatory perspective, Ally may be absolutely correct that their affiliate program counts as advertising rather than buying recommendations. I have no idea. But I doubt that’s their concern here. It seems unlikely that the legal nature of the program is affected by how I describe it in my blog posts.
Hi. I'm Mike Piper, the author of this blog. I'm a CPA and the author of several personal finance books. The point of this blog is to show that investing doesn't have to be complicated. 
First let me say that I like Ally Bank a lot. I use them, and have recommended them (I’ve never been compensated in any way for doing so and I don’t want to be). However, I’ve also had a couple of customer service issues, not enough to make stop using them, but quite annoying.
What I find kind of funny (not in a good way) about this is that Ally refers to itself as a “better bank” because they are straight talkers, but saying, “Ally Bank pays affiliates to place their ads on their sites” is not straight talk. Rather than spin it, they need to say exactly what it is, paying affiliates when new customers come from the affiliate’s site.
They don’t have to call it “recommendations,” but it doesn’t change the fact that it is more profitable for you and other affiliates to recommend Ally Bank than Bank of America. For them to take issue with or want to hide that is not the “straight talk,” “doing right,” or being an “obviously better bank,” they like to say about themselves.
I hope this issue really came form the affiliate company and not actually Ally Bank because that is really disappointing.
Unfortunately Ally bank is not as pretty as it tries to paint itself. Their bill payment system is a hugh let down compared to i.e. ING Direct. There is a lot of mess in their checking accounts system and it’s almost impossible (for customer service reps) to track money transfers in their own system.
Over a month ago Ally failed to post my mortgage payment and I found out about it only because of the late fee I got from my mortgage company (Ally took the money out of my account on the pay day). It took over a week of my everyday phone calls for Ally to find out what happened. I never did. They still don’t know if the payment was sent out, or if it got lost or whatever happened. Ally’s system takes money out from accounts on the day when the money is send out, not when the money is actually received or payment checks are cashed. So if the payment check gets lost or money transfer fails, your money is gone and your bill is not paid.
They also have no idea which of your payments was already posted and when.
I’m moving my bill payments to another bank.
I don’t know why you are so hung up on sales and reviews by other blogs via affiliate payments. Like you are self righteous or something.
“I do have a problem with a company trying to keep that fact a secret.”
It’s not a secret, and in fact to be in compliance with the FTC you must disclose this info on your web site. Is it my fault a visitor does not read the legal disclosures? How do you propose this is handled then?
So if some company denies me an affiliate program should I write a negative review then? I had one brokerage house do just that with me. I like and use their service, but hate their affiliate program. I will eventually write a review on them, and will be honest, just like I am with my other affiliate clients. With any sales it comes down to honesty. If you aren’t honest with your customers (in this case visitors) eventually it will be known.
Do your own thing, and let the market decide if they like your honesty and integrity. If not, then there is your answer. I believe though you would do fine.
Whoa there.
I’m not “hung up” on affiliate programs at all. I use them myself. They make up ~15% of my income.
Like I said above, I have absolutely no problem with a company paying people to sell its product. I worked in direct sales for ~6 years myself. (And my current work definitely involves marketing as well.) Sales is a natural part of the business world.
I simply think that consumers should be aware of the fact that the person/website they’re interacting with is paid via commission if/when that’s the case.
My interactions with readers (and my offline interactions) suggest that, so far, most people are still entirely unaware of the entire concept of affiliate programs. So I make a point to bring it up here on the blog because I think it’s important.
And when companies go out of their way to repaint their affiliate program as simple advertising rather than a paid sales relationship, I think that’s a problem.
Mike, you see that’s the thing with affiliate programs. Ally in this case offers ads and links to promote their service. It’s the responsibility of the blogger than say Ally to determine how it’s used. Ads are even getting more subversive where they are part of a paragraph than just a link in a paragraph. This is no different than TV and product placement within shows themselves. If the content is “free” then the visitor should be aware it’s being paid for somehow. It’s econ 101 but that seems to be a big issue with most people anyways.
Let me add this types of subversive relationships have existed for years in other mediums (print, TV, movies, etc…) Online is expected to be no different.
There is no such thing as a free lunch.
I appreciate your honesty with the willingness to tell your readers about the affiliate programs and how they work. I for one didn’t know how they/it works and now am now more educated in the subject. (I wonder if Investor Junkie works for Ally – you seem to have struck one of his nerves.)
Lucas, NO I don’t “work” for Ally, but I do have them as an affiliate on another site of mine as I do many others. Mike has made this comment about affiliates in a few other places previously and made it sound like he’s “above” other bloggers while he admits he also does it.
My point is if you are visiting a commercial site, and it’s “free” think about how are they making money to keep food on the table…. Again it’s econ 101 and use common sense.
To add to my previous comment, and to echo somewhat what Investor Junkie is saying, advertisements on a site are obviously paid for (whether they’re pay-per-click or pay-per-signup is inconsequential). I don’t think it’s particularly challenging for the average reader to know that.
But the average reader would not stop to think that a recommendation on a blog is actually the author’s attempt to cash in on referral fees. The average reader would think, and rightfully so, that the author is being truthful when he recommends a product. If an unscrupulous blogger shills a product simply to earn more referral fees, that’s more a comment on his own dishonesty than that of the affiliate. The affiliate did not instruct them to write a positive review in the first place, and I think that’s the point your Ally representative was trying to drive home, but you seem to have missed it. They are not paying you to write a positive review. They’re paying you to drive traffic. How you go about doing that is solely up to your discretion.
@S: Yes that’s exactly my point. Thanks for making it clearer.
S: But they aren’t “paying to drive traffic.” They pay for sales/customers. That’s how affiliate programs work. Read any resources on affiliate marketing, and it’s very clear that the money is made by recommending the product, not by simply putting a banner in the sidebar and letting it sit there.
Affiliate programs are very different from pay-per-impression ads, monthly-based display ads, or pay-per-click ads.
Also, all my original post said was that it’s “more profitable to recommend Ally Bank than Bank of America.” To me, that’s hard to argue with, given that one has an affiliate program and the other does not. The fact that Ally would want to cover that up is what I do not like.
@Mike: I’m not aware of any affiliate program in which you must be “recommend their product” to stay on their affiliate program. If there is one, please state the company and in it’s legal terms that mention this?
As an advertiser PPC it is more effective means anyways (affiliate or not). You as an advertiser then pay for effective conversions (which can be good placement), but no one states it must be part of a review.
In some cases PPC ads (meaning on the right side) can be much more effective for the blogger. With the PPC or per-signup you can make more money on one click than a few days worth of ad impressions.
Do probloggers state you should do recommendations and use affiliate systems to then make money? Yes and that is where your beef should be directed towards.
Investor Junkie:
I agree that “If the content is free then the visitor should be aware it’s being paid for somehow.”
And I agree that affiliate programs have similarities to paid product placement.
Still, I think there are a few meaningful differences.
First, product placement is simply a fee to include the product. This is different from a commission, in that the producer of the TV show/movie doesn’t have a direct financial interest in how well the product placement sells the product. They leave that up to the company paying for it.
Second, product placement typically occurs in fictional settings–like movies. I think there’s a meaningful difference between:
Finally, I think there’s a meaningful difference in that people are familiar with the concept of product placement by now. If they see it in a movie, they know why it’s there. As I mentioned above, I’m convinced that most people are still not familiar with the concept of affiliate programs.
This last reason is why I feel that it’s important to mention it from time to time and explain how it affects the quality of information they receive.
@Investor Junkie: Mikes point is very simple and I think you may be over thinking it. Bloggers recommend products and sometimes, they receive a financial reward if the recommendation is acted upon via their site. If a blogger wanted to (I’m not saying they do or don’t) increase his income, he could focus on recommending products and services that have the best paying affiliate programs.
When you see an add in a magazine or see a product placement on television, sure, we can infer it was paid for. But the magazine or TV show doesn’t get a slice of the sales. That’s the difference between “sales” and “marketing.” If you really don’t see why that may be important to consumers, I’m not sure what else can be said.
Also, it is not readily obvious to readers which recommendations reward the blogger unless the blogger points it out. Typically the use of affiliate links are disclosed but do not always identify specific programs included. Since consumer awareness has been one of the themes of this blog, it only makes sense that Mike would post on it often. I don’t see it as Mike thinking he is some how holier then thou for doing it.
Great conversation Mike ,Investor Junkie, and all. If I’ve taken anything from this thread it’s: beware of products recommended by blogs because there will be some biasness in the review unless the blogger doesn’t care about losing his connection with the affiliate program. ( my conclusion reached by the monitoring of Ally of your site). Mike did a great job here and showing that he probably doesn’t care. Or did he? — he did go on to write that Ally was a great service.
What is a junior blogger, whose primary purpose is only to educate, to do, but still wouln’t mind making a buck or two? Are there any bounds? Will I turn into a mercenary?
Google Adsense puts up whoever the hell they want so I’d be busy filtering out payday loans and other questionable sites, affiliate links wants (although not required) great reviews for their products, and some advertisers even want to put pop-ups on the author’s blogs. It appears that my only choice is to simply go with the ad banner placement of only products that I recommend.
Yes this is a good discussion.
@Mike: What about comparing to print? Isn’t it odd in a magazine you see a review of something and on the next page is an ad for that same product? Did this just happen by accident?
Yes they are not directly comped for the amount of people that buy from that ad (another discussion but IMHO this what makes online so great – effective measuring), but I can assure you magazines are influenced indirectly if not directly based upon their advertisers. I can think of a few magazines over the years that did exactly this, and suspected their non-basis.
My overall point is this nothing new and existed in other mediums for years. Why should online be any different?
Me personally would love a membership only site that people pay to hear my rants, but that’s not reality. Nor has most other medium publications gone that way. Only a few companies have been successful in doing customer only memberships (ie Consumer Reports). Yes it is possible to make portions of your site a premium membership (books count).
What it comes down to is the integrity of the publisher. A happy medium of income generation via affiliates and adding true value to your readers does exist. After all, if you really use a product, like the product and give it a good review why shouldn’t you get compensated for it? In the long run if you establish a good relationship with your readers you will be rewarded for this.
You’re right. This type of thing has existed for years. People have been paid commission for longer than currency has even existed, I’d bet.
My reason for writing about it is simply that I think that people should be aware of it online as well, and yet (from what I’ve seen) they aren’t.
@Romeo:
I find it ironic I got rejected from one said affiliate based upon I mention specific stocks I own. (You can take what I say and do whatever you want with it including buying the same stocks I own). I state a few times on my site, what may make sense for my financial situation, may not for you and should always do your own research. They still didn’t like this and refused to approve my web site.
Yet Google ads (AdSense) have ads from them appearing on my site all the time! I call BS on this company. If they really did have an issue with my site, they would block any ads from ever appearing on my site.
Let me finally add for everyone concerned about affiliates and affiliate links and how to spot them. It is most definitely possible to setup an affiliate relationship in which the visitor will never know the relationship exists.
Another web site can get compensated for just have a ‘good ole’ regular hyperlink on their blog to the target company. Technology exists in which both the blogger affiliate and company know how many clicks and/or sign ups occurred because of said hyperlink. So don’t just think hyperlinks with some funky URL that doesn’t reference the target company or references ‘/go/whatever’ links are only affiliate links.
Any link could potentially be a link in which the blogger is compensated for.
I have been a customer of ally for an year now , opened an online checking account and later converted it into a money market. I have had no problems with them besides their dismal interest rate( like almost all other banks). One can transfer and ach/credit/debit money across ally and external accounts which I like it a lot and its useful. Until someone else consistently offers some good rate I will stick with Ally. Also, the online interface is pretty user friendly too.
fyi – I have nothing to do with ally and I will drop them in a heartbeat if another bank offers a better rate
Thanks very much for this Mike. Like most other casual web surfers, I was completely oblivious to these types of things. Knowing that you guys are making money off of recommendations is another part of the equation. I appreciate you being so straightforward. (For full disclosure, I’m not subscribed to your feed).
I’m not sure what the argument is. It seems to me that if bloggers are making money off affiliate programs, it makes sense that they’d push the product. That’s Econ 101. And I’m sure the affiliate programs are well aware of this.
I was initially drawn to Mike’s blog from his write-up on Lending Club which was very thorough, critical, and informative.
I also saw a link to Investor Junkie’s review (http://investorjunkie.com/4/lending-club-review/). I’m still wrapping my head around this affiliate program idea. Do you make money off those links? The article didn’t seem too critical.
@Nathan: Well unlike other Lending Club affiliates I put my money where my mouth is. Also keep in mind Mike’s critical review of Lending Club is based upon no direct investment or experience with the product.
I currently have over $5k invested with Lending Club. Is Lending Club perfect? No, but based upon my experience so far I like what I see, and the returns are somewhat stable. The primary issue I have currently with Lending Club is finding good loans to invest in. I am very picky with my selection. I’ll be discussing this in my next update in January.
“Also keep in mind Mike’s critical review of Lending Club is based upon no direct investment or experience with the product.”
True enough! Based on the information I read in the prospectus, I wouldn’t touch it with my own money. (Edited to add: Not that I think others necessarily shouldn’t. But for me, it’s entirely too high risk.)
@Mike: Agreed, and I state this in a few places in my blog. What makes sense for me and where I’m at financially, may not for others. $5k of my total net worth is a small amount and in fact Lending Club has specific requirements on this. There are a few bloggers who have little or no net worth who’ve invested over $110k themselves (some of it borrowed). I do not recommend this!
Though this is just like many people will not start a business because they also consider that too risky.
Thanks for the answers guys. I too browsed the LC prospectus and saw some issues with it. Mostly the idea that while the returns are good, a (large?) portion of the risk is also the stability of the company.
My situation is pretty simple really and I’m wondering if you could offer some advice. I’m a recent college graduate (with an engineering degree that was fortunately able to make money right out the door). I’ve been working for about a year and have $8000 saved. A 3-4 month safety net. I’m leaving that in a savings account earning 1.0%.
In the meantime, I have my 401k maxed out and I’m looking to put any additional savings to work. I stumbled on LC and thought I’d give it a try. There’s currently $1500 in it.
I’ll spin the roulette wheel now and then and I’m not totally risk averse. But I also don’t want to put my hard earned money into something that’s not worth it (obviously). Should I spread it around a bit more? Perhaps check out iShares High Yield Corporate Bond ETF? Other investments?
Thanks for any advice.
(p.s. *not* should have read *now*, I like this blog and will be keeping up on it. thanks for your advice)
@Nathan: Do you have an IRA somewhere? If you’re eligible for a Roth, that would be the first thing I’d do with extra money.
As to how to actually invest it, my question would be, do you expect to need the money in the near/intermediate term at all (for a home down payment for instance)? Or is this money that you’re planning to leave untouched until retirement?
Yes, I’m planning to save for a down payment. “When” is the question since I probably won’t be purchasing a house for another 5-10 years. So in the meantime, it seems rather silly to stick it into a savings account earning 1.0% (or basically losing value).
I do have some student loans at a variable rate (prime + 0.0%, basically free money right now) and a car loan at 5.5%. I’ve stuck a couple extra payments into my car but figured there’s gotta be something better than 5.5% out there. And I’d rather save/invest the money.
Anyways, as a young guy, it’s not too complicated of a situation. No mortgages, no crazy tax situations, no wife or children.
Oh, and yes, I believe I’d be eligible for a Roth IRA. (My familiarity with these isn’t too great, although I do know that taxes are paid on the way in which is a benefit for someone young who’s paying at a lower tax rate).
5.5% isn’t bad for a guaranteed rate of return–especially for a relatively short time frame (5-10 years).
For example, by way of comparison, the high-yield ETF you mentioned (HYG) currently has a yield of 7.17%. But, as a junk-bond fund, it also comes with a large amount of credit risk. It also has a significant amount of interest rate risk. (That is, its market price will go down if market interest rates go up.)
And for a 5-10 year time frame, even a diversified stock portfolio has a lot of risk. Unless you’re OK with the possibility that you’ll have less money at the end of the period, I’d generally put the money in something with little to no risk. (More thoughts on that here.) And in this case, you have a no-risk investment option with a pretty respectable return: paying off the loan.