They Have To Get Paid Somehow
Plus some comments on my recent quotes in the Washington Post
There were two recent articles about the financial advice industry that caught my attention. And not in a good way.
They are about different segments of the industry, but both are about forces steering consumers towards paying more for financial advice and products. I don’t like that.
The first was an article in Wired magazine titled, “AI Financial Advisers Target Young People Living Paycheck to Paycheck”.
If you’ve ever tried to open an investment account in the past few years, you might have noticed they have options to fill out a survey to help you invest your money. This is common on robo-advisor sites like Betterment and Wealthfront. You open an account and fund it, and they ask you some questions about your investing style and risk tolerance and they provide you with a portfolio recommendation.1
Well, there is going to be a whole new wave of AI fintech companies doing the exact same thing. This Wired article details some of the new entrants. You can talk with an AI chatbot after filling out your financial information and they’ll give you guidance on what products to buy. Every paragraph is alarming, but this one takes the cake:
“Every tap that I took in the Bright app seemed to nudge me toward a third-party offering, including preset “For you” buttons at the bottom of the chatbot where two of the four prewritten prompts are about getting instant cash. One of the loans offered to me through a third-party lender was for $3,900 with an annual interest rate that ranged between 160 percent and 195 percent. Bright did not respond to multiple requests for comment via phone and email.”
Beware of the AI chatbots giving you financial advice. They may be programmed to steer you towards products and services you don’t need.
The second article was from the incomparable Jason Zweig at the Wall Street Journal. Titled, “What You Don’t Know Could Sting Your Portfolio”, Zweig writes about the pressure certain custodians put on advisors using their platforms to drive profit. For any independent financial advisor who manages assets, this is a concern.2
This article highlights one brave advisor, Mr. Armbruster, who custodies client assets at Fidelity. The advisor tells a story of how a Fidelity representative laid out seven options for his firm to specifically generate $90,000 more in revenue, thereby making Fidelity more money, or he’d have to move somewhere else.3
Zweig notes, “Each of those moves would make Fidelity a little bit more money, thanks to lower payouts or higher fees. And they would likely make Armbruster’s clients a little bit less money”.
I don’t like that.
Of course, Fidelity is a for-profit business and needs to make money. But this article is so important because it highlights how the advisor has to make a choice to eat the cost themselves or pass the costs off onto the client. Which one do you think they choose?
Beware of financial incentives when investing with any financial company or financial advisor. They may be working to move more dollars from your pocket to theirs.
There is a phenomenon called Gell-Mann amnesia. It’s when you’re flipping through the newspaper and thinking everything in the paper is true until you read an article where you have a certain expertise and you realize the reporter didn’t get it quite right. It’s full of errors, sometimes minor, sometimes major.4 Then you continue reading on, assuming articles on other topics are completely accurate.
Well, I was quoted seven times in a recent Washington Post article about personal finance: "Older women face hurdles with investing. These savers figured it out." (paywalled)
Being familiar with Gell-Mann Amnesia, my initial reaction was to see how I would be misquoted. Which tidbits from my hour-long conversation with the reporter would be used? How would it make me look?
I believe I said all the things that were quoted in the article. But in the context the article was written? Not quite. Like 90-ish percent maybe. The biggest correction would be how one of my former employers pays its advisors, but it was close enough.
Overall, I thought the piece delivered on what I was told would be the premise: inspirational stories about older women investors who went through some hardship and are in a better position now.
I do have concerns with how the article was assigned to the reporter. A narrative was already chosen by the editor and it was the reporter’s job to find the corroborating evidence. Pretty classic example for what you’re not supposed to do in journalism, right? For the record, the reporter was totally aware of how pigeon-holed she was with the assignment and complained about it.
I provided anecdotal evidence to fit her assignment. But plenty of our conversation was about how I’ve worked with many older women who have been financially successful their entire lives. Not only those that started late. I also talked about how I work with lots of younger women who are taking control of their financial lives and are putting themselves in excellent positions for their future.
But the piece wasn’t about young women or older women who have crushed it their whole lives.
Funny enough, I read through most of the 395 comments on the article. Many comments are horrifically sexist.5 But several commenters wrote things I agreed with. They wanted financial success stories written about and framed as “successes”. I know purely positive stories don’t sell or get many views so it won’t ever happen. But if any reporters want to write some of those stories, feel free to reach out 🙂
If you want your personal finance questions answered in a future Mound Visits, comment below or send me an email at nick@nineinningfinance.com with your question/scenario.
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Nothing in this email is intended to serve as financial advice. I don’t know your personal circumstances and would never provide financial advice through this medium. This newsletter is intended to be educational and entertaining. Please consult a financial professional and do your own research before making any changes to your portfolio.
From what I’ve seen, a more complicated and pricey portfolio than most people need.
Not a problem for me, because I don’t manage client assets. Another win for the advice-only fee model!
If this sounds like Mafia-style tactics to you, I think you’d be right?
This is one reason why I was so impressed with the Wired and WSJ articles. I have domain expertise and I think they were pretty close to 100% accurate.
Towards both men and women? I wish I could go back in time and not read that comment section. NEVER READ THE COMMENT SECTION.