The Informed Investor
Three Steps to Avoid Media Bias
If you are looking for a financial advisor, where would you go? You may search the internet for the “top financial advisors near me” or “best financial planners in 2024.” When the search results pop up, you might breeze past specific firms in favor of a more “neutral” source—an article from a major news outlet, a column by a financial writer, a database of financial planners or a report from a financial publication. As you scroll through these articles, the same names or, at least, the same companies might keep popping up. You may think, “That’s a good sign; clearly, these are the top performers in the industry.” But are they the top performers or merely the top spenders? Are these the most competent and trustworthy financial advisory firms and advisors or simply the ones with the largest marketing budgets?
The Media Can Be Bought
At this point, few people will probably be surprised to learn that much of the news media—including financial media outlets—can be bought. Though the average consumer might, in theory, be aware of this, they may not realize the extent of the deception or know who to trust. It can be challenging to discern between factual articles and sponsored content. And it can be hard to see how a media company compiled lists of “top financial planners” or “best investment companies.”
In Barrons’ recent “Top 100 Financial Advisors,”[1] most advisors hailed from wirehouse brokerage firms. “Wirehouse brokerage” — a term coined before the advent of wireless communication — refers to large-scale, full-service brokerages employed by one of the big players (i.e. Morgan Stanley, Wells Fargo, Bank of America’s Merril Lynch, and UBS).[2]
How were these financial planners selected? And why did thousands of financial planners in independent financial advisory firms fail to make the lists? It could be that the wirehouse brokers really are better and brighter, but I highly doubt that’s the case. Far more likely, the big brokerage firms backing these brokerage firm licensed financial advisors are doling out thousands—if not millions—of dollars to appear in big-name publications and at the top of “best-of” lists.
Big brokerage firms have marketing budgets many times larger than independent financial advisors. This budget gives them an advantage in shaping their public image and influencing the media. They can hire public relations firms to create positive press releases and secure media appearances for their people. They can also buy advertising space in financial publications or pay to sponsor articles.
Consume with Caution
It’s worth pointing out that not all media articles are false or misleading. Where do you look? If you're unsure if you can trust a financial publication, you can do some research to determine its owner and funding sources. A publication owned by a large corporation or funded by a financial firm may be biased toward promoting its own interests. Additionally, look for articles that are written by reporters rather than sponsored content. Sponsored content is usually labeled as such. Reading a few different sources to get a well-rounded perspective is also a good idea. Remember to consume financial news cautiously and use critical thinking to separate fact from fiction.
How to Protect Yourself as an Investor
How can individual investors protect themselves? For one, approach all articles and reports from major news outlets and financial publications with a healthy dose of skepticism. Question the sources of their information and be aware of the marketing tactics of big Wall Street banks and brokerage firms. Additionally, look for independent sources of information, such as blogs written by financial experts or forums where investors can share their experiences with different financial advisors.
Alternatively, you could skip the news media entirely when seeking a financial advisor. Use websites like Fee-Only Network (https://www.feeonlynetwork.com)/ or NAPFA (https://www.napfa.org/find-an-advisor) to find a suitable fee-only fiduciary. Fee-only fiduciaries are financial advisors who are legally bound to act in their client’s best interests. These advisors typically charge a straightforward fee for their services, and they do not accept commissions or bonuses or charge hidden fees. Fiduciaries are also subject to strict ethical standards, which require them to disclose any potential conflicts of interest.
If you choose to read financial publications, take the information you consume with a grain of salt. You likely won’t have time to research every single publication you read or investigate how each reporter obtained their information, BUT you can use critical thinking and common sense. Ask yourself: Who has something to gain from this article’s publication? Who may benefit monetarily?
As an investor seeking financial planning guidance, it’s wise to be cautious of the marketing tactics of big Wall Street banks and brokerage firms. Their marketing budgets are many times larger than independent financial advisors, giving them an advantage in shaping their public image and influencing the media. When consuming financial news, it's essential to question the sources of information and read multiple sources to get a well-rounded perspective.
To me, all this information boils down to three key recommendations:
- Tune out the noise from the mainstream media.
- Opt for independent sources of information.
- When you’re searching for a financial advisor, place your trust in fee-only fiduciaries who are legally bound to act in their clients’ best interests.
Beyond those three straightforward recommendations, it’s a good idea to pay attention, question articles’ sources, and seek guidance from various trusted resources. When it comes to consuming information from the media, the more you practice discretion and actively explore the motives for the content, the easier it will become to spot the wolves in sheep’s clothing.
References
1. Barron’s. (2023). https://www.barrons.com/advisor/report/top-financial-advisors/100?page=5&
2. Kenton, W. (April 2, 2024). Wirehouse broker: what they do, during the financial crisis. Investopedia. https://www.investopedia.com/terms/w/wire-house-broker.asp
Learn more about David Bromelkamp
Hello! I’m Dave, the founder and chief executive officer of Allodium Investment Consultants, located in Minneapolis, MN. I am also the author of AdvisorSmart for the Individual Investor: Your Guide to Selecting a Financial Advisor to Get Better Financial Advice. I am dedicated to educating individual and institutional investors about financial planning and investing. When I’m not helping people make investment decisions, I enjoy traveling, hiking and spending time with my wife and family.
The information provided is for educational purposes only and is not intended to be, and should not be construed as, investment, legal or tax advice. Allodium makes no warranties with regard to the information or results obtained by its use and disclaim any liability arising out of your use of or reliance on the information. It should not be construed as an offer, solicitation or recommendation to make an investment. The information is subject to change and, although based upon information that Allodium considers reliable, is not guaranteed as to accuracy or completeness. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment.