I'm going to state an unpopular opinion:
Content creation is a big problem for investors.
Backdrop
Content creation has become a tool to drive website traffic, Search Engine Optimization, lead generation, by focusing on the attention economy and the main reason behind all of this is simple.
It leads to sales.
I don't have a problem with businesses selling things. Businesses HAVE TO sell something by definition, in order to be a 'business'. Selling things leads to revenue, which leads to jobs, which filters into the economy and the cycle goes on and on. Without sales, businesses don't exist. It's essential.
The problem is not selling someone groceries, or technology gadgets, entertainment or services. Those are all things that may be reasonable to sell. Everyone has probably been sold something in their life and generally speaking, it doesn't create too much regret. Think about your Smartphone or your car... Chances are some marketing helped you make that purchase, whether or not you were consciously aware of it.
What's the problem then?
The problem comes to when people make investing decisions, it's pretty clear based on studies, evidence, and research what is going to lead to the best outcomes for the average person. Simple works for most people, but simple doesn't 'sell' very well. This means that the financial industry has to find ways to 'sell' people things so the financial industry can make money. This might even include selling things that are not in an investor's best interest. Let's go deeper with an example:
If you are sold a nutritional drink that is supposed to make you incredibly healthy and it doesn't, you've lost out on the money you paid for it. Maybe that's $50 or $100. It's not fun to lose money, but that one purchase doesn't cripple you, financially.
However, if you are sold an investment that doesn't do what it's supposed to, or doesn't fit your preferences, then it can reduce your wealth by a huge amount and possibly lose everything. That CAN cripple your finances.
The difference in the two scenarios above is the effect that a bad investment can have on your life. It's a big deal.
Content creation is essentially a tool to increase sales. There is (yet another) conflict of interest when it comes to the financial industry. Even the very best, brightest, smartest, and most informed of financial service companies have to compete in ways that they may not agree with.
Morningstar is a prime example. They are an investment research company. They don't actually offer any investments of their own (no managed funds, unit trusts, ETFs or shares), they just provide research. This company is one of the better known for investment research and they understand what a smart investment strategy looks like. They do the research to show that going with a diversified portfolio, that matches a person's age and stage of life, is a smart approach.
What's not smart? Picking individual stocks.
(It goes against evidence-based investing principles)
Yet, if you go to Morningstar's website, you can find links such as: "ASX Stocks to Buy"
This is where things go haywire.
Why would a top research company that knows individual stock/share picking is a losing strategy, have a section of their website that promotes that?
The answer is fairly straight forward: Probably because it interests some investors. So they create content that buys people's attention.
If that isn't frustrating to you, I believe it should be. It's like your doctor telling you to quit smoking, but then offering to sell you a pack of smokes at the same time.
Most people don't see it that way because this has been going on so long in the financial industry, that it's just been accepted as 'normal'. Unfortunately, normal is not good in this instance.
Who's to Blame?
The answer to this will probably annoy anybody and everybody but the best answer is:
We're all to blame. You, me, them, they, others, us. Everyone.
What I mean is, content creation about investments attracts attention. It helps people feel like they are informed, and many investors feel pressure to feel informed because money is important. Not understanding money can feel embarrassing. Just think about anytime someone talked about a financial concept and you didn't understand. What does it mean when someone says, "The Dow Jones bumped 200 points today." - it feels like it's important, right? (It means a stock index in the US went up $200, but again, that doesn't mean much given the index is always changing value. A more informed statement would be what percentage the index went up or down by).
Once the content is created, investors go to it and absorb it. Many of those investors will make decisions about their money and investments based on the content they just read/ watched. This is not a good thing.
Content creators then find that the article/video/media that they put out got a lot of attention, so more viewers come back to their website, and a feedback loop is formed. Investors want more content, and content creators can create more content. So the cycle continues.
We reap what we sow.
Content creation creates investors that buy or sell investments, which goes against the good philosophy of 'buy and hold'. This is called Bias to Action, and it makes us feel like doing something is better than doing nothing. While that can be true for some things, it's generally not true when it comes to investing. This is why content creation is a problem for investors .
What's the solution to all this?
The solution is simple, but not easy. There are three parts:
1. We as individuals have to tune out the noise.
Stop looking for market commentary on what the stock market does. It doesn't help. Speaking from years of experience, many financial 'professionals' read market commentary and either don't understand it, or forget about it as soon as they close that article. If it doesn't help them, why would it help the average person?
2. Remember, life is about the Long-Game. Be patient.
We often hear life is short. In a sense, that's true. On the other hand, you don't need to do everything today. You have some time, and that is so important to remember when it comes to investing. Serious wealth isn't built over night, or in a week, month or even a year. It usually takes decades. Being patient can help you stick to the course of action, instead of changing things every 3.5 minutes.
3. Have a Plan
Having an investment is not a financial plan. Having insurances is not a financial plan. Talking to your friend about money is not a financial plan. Getting a hot 'stock tip' from a brother-in-law is not a financial plan. Having a budget is not a financial plan. Waiting for your pension to kick in is not a financial plan. Receiving an inheritance is not a financial plan. While all those things are elements of a good financial plan, the only thing that really counts as a holistic financial plan is... a financial plan.
I have only ever met a few people out of about 20,000+ that have put together a financial plan on their own that I felt was adequate, sound, and didn't require any significant changes. Almost every body else (more than 19,997 people) could have used the help of a financial professional (not a financial salesperson), to have a smart plan in place.
Take Aways
The reason we are putting this article out there is because here are Irvine Wenborn, we are in the Financial Services Profession (not the industry). We want to see the Financial Services do more good for it's clients. We feel that for too long, financial sales people have peddled financial products that aren't very good, and what's worse is, those salespeople got paid very well for their wake of destruction. This is unacceptable and really bothersome.
We want to see financial services elevated in NZ and also worldwide. We want higher standards, better ethics, and more informed investors. These are things that should be at the core of EVERY SINGLE financial service company, and when we meet people that work in finance who have other motivations, we grow disappointed.
The purpose of this article is to show that financial services is not a perfect sector. Far from it. Finances are also important and the difference between a good or bad financial decision can make a big difference in someone's life. So let's all make sure the financial services sector is improving. Let's make it better, so that advisers are better able to serve their clients, and not the other way around.
Does anyone disagree?