Unbiased Financial Advice Is An Oxymoron

The other day I was looking at a colleague’s social media account where he proudly stated that he strives to provide “unbiased” financial advice. Now on the surface this seems like a noble endeavor. He obviously created that slogan to invoke a sense of trust and soundness of principle in his profession. I’m sure it gives some folks a warm and fuzzy feeling.

However, it’s categorically inaccurate to say you provide unbiased advice. Everyone in this business is biased in some way based on their education, experience, compensation, expectations, and other intangible characteristics.

Let’s think of just some of the ways this works in the real world….

• Some advisers prefer ETFs.
• Some advisers still love mutual funds.
• Some tell you to convert to a Roth IRA.
• Some tell you to buy-and-hold for the long-term.
• Some tell you to be active with your asset allocation.
• Some tell you to take social security immediately.
• Some tell you to wait as long as possible before taking social security.
• Some get paid on a percentage of assets under management.
• Some get paid on a commission-based model.

I can go on and on with all the individual preferences that advisers have biased themselves toward. This can also be swayed by the unique situation of the client or even the type of software that many financial planners love to lean on.

You can get from A to Z in many ways. Arguing about the differences between Vanguard index mutual funds and Blackrock ETFs is effectually splitting hairs. While some might prefer one system over another, they are largely going to perform in a similar manner. It’s mostly about comfort with a process that you have come to associate with a successful outcome.

It would be much more accurate to state that an adviser gives “conflict-free investment advice” or “aligns themselves with your interests” rather than arguing for an unbiased experience. Advisers that have adopted ethical standards or hold themselves accountable as a fiduciary certainly fall into this category. Some examples include: fee-only registered investment advisers, level-fee advisers, and others whose compensation isn’t tied to anything they are recommending.

It’s extremely important before you begin any relationship with an adviser that you understand their compensation (read: motivation) and investment philosophy. You will be far more likely to stick with them through periods of stress or even underperformance if you remember why you originally bought in to their style to begin with. Write it down and return to those notes when doubts appear so that you don’t make the mistake of running off in a new direction at an inopportune moment.

The business of investing has thousands of different permutations in the way that advisers operate.There will always be embedded biases. Ultimately, you can use those characteristics to your advantage to select a professional that aligns with your unique needs and objectives.