The Enemy Within

By Bob Veres

I believe the press and the media are the enemies of financial planning professionals—in a number of ways. It’s time to call them out on it.

If this was a debate, I’d start with the fact that the incentives in the media are exactly the opposite of providing sound financial advice. We talk about “financial pornography,” which basically means sensationalizing what is fundamentally a mundane process: creating a prudent, well-diversified portfolio while minimizing costs and turnover and (here’s the key motivational differentiator) avoiding emotional or rash decisions when the investment ride gets bumpy.

A History of Creating or Feeding a Frenzy

The media’s revenue model depends on attracting the attention of as many people as possible, and in the financial realm, that means finding ways to get people frightened and excited. The market goes down two percentage points, and the clickbait headlines imply that we’re plunging into a bear market. TV pundits scream about buying opportunities, and few of us escape a day without getting an online tip about a company that is the next Nvidia—at pennies a share.

I go back to the days before the tech wreck, when there were daily articles telling us that the economy was being transformed by technology, and it was time to load up on Ashton-Tate, Lotus, Commodore, Hyperion Solutions, Aldus, and Palm. Today it’s AI.

When the Great Recession hit, there was nothing in the media to encourage investors to hang on for the inevitable recovery. In every market I can remember, the focus of the press was not on maintaining calm; the articles were inevitably creating or feeding a frenzy.

The Fallacy of Being Able to Predict the Future

Then (continuing the debate), I’d point out how many times various articles and TV appearances feed the silly idea that well-dressed economists can somehow predict the future. How many times have we seen or read interviews where a well-dressed economist is asked, Where do you see interest rates going in the next six months? What do you think the markets are going to do? Do you see a recession on the horizon?

Soothsayers in China’s Shang dynasty burned tortoise shells to divine what was to come. In Mesopotamian and Roman cultures, professional prognosticators would study the entrails of sheep to inform their leaders about future events. Instead of wizard’s hats and crystal balls, today’s gypsy diviners wear power ties and hold economics degrees. But are the results any different?

All of these articles, TV appearances, and postings suggest that somehow we can predict the future, which directly and persistently contradicts one of the most important tenets of successful investing. There is no way to calculate how much time and energy professional financial planners have to spend to counteract this persistent lie.

Masquerading as a Financial Planner

Before I rest my case, let me point out how the media is constantly attempting to usurp the role of a financial planner—to replace you as the trusted source about investing. It provides daily articles chronicling the exciting white noise of market activity, as if any of this had any relevance to prudently managing a retirement portfolio.  

Never was this so flagrant as when Money magazine began calling itself “America’s Financial Planner” right there on the nameplate. Some years ago, Money decided to select the 100 “best” financial planners, and sent out a questionnaire asking advisors how they practiced. They sent me one, apparently believing I manage client assets, and so of course I filled it out—but not for myself.  

I filled it out on behalf of America’s Financial Planner.  

Question: What facts do you gather about your clients before giving them personalized recommendations?
Money magazine answer: We don’t bother to collect any personalized information. Our articles give out the same investment recommendations to everybody, whether they be wealthy or impoverished, nearing retirement or just starting out.

Question: What conflicts of interest do you have in your client relationships, and how do you control and disclose them?
Money magazine answer: We collect millions of advertising dollars from the same fund companies and brokerage firms that we enthusiastically recommend in our articles and never disclose any connection between the two.

Question: What are your credentials to hold yourself out as a financial professional? (Please list all that apply.)
Money magazine answer: We don’t require our writers to have any credentials.

Question: What is your investment philosophy?
Money magazine answer: We recommend “hot funds to buy now,” giving preference to our advertisers, and six months later we will recommend an entirely different set of “best funds for today,” and never, ever, do we tell our readers to sell any of the funds we’ve recommended. (We also recommend “hot stocks” occasionally.)

Conflicts of Interest Result in Harmful Advice

I believe it was 1999 when I was asked to give a keynote presentation at the annual meeting of the Society for Advancing Business Editing and Writing (SABEW). I told the audience that they were in the business of sensationalizing meaningless white noise, and if the media wanted to offer truly valuable investment advice, they would come out with a single issue and then suspend publication. The single issue would be made up of a single article that would tout the benefits of a well-diversified portfolio and a patient mindset—and the especially great benefit of ignoring the media because there were built-in conflicts of interest in its business model that required it to offer a constant feed of harmful advice.

Over the years, I’ve argued that the incentives in the wirehouse world focus on benefiting brokers and the company rather than consumers—to the detriment of our society as a whole. It’s about time we realized that the incentives in the media are not very much different, and the harm may actually be greater.

Did I win the debate?

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Bob Veres is the publisher of Inside Information and one of the strongest advocates of Fee-Only planning in today’s profession. If you think his columns are full of the stuff that hits the fan, tell him so directly at bob@bobveres.com.

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