Over the past couple of decades the Internet has transformed our lives, and nowhere is this truer than when it comes to financial advice. Across the entire range of products and services, transactions that once took place in the context of a personal relationship are now conducted online: we can buy insurance, invest our money, look for the best mortgage, and perform countless other tasks without having to leave the comfort of our living rooms. What’s more, the ability to google any topic has made a vast trove of knowledge instantly available to the masses.
In many ways, this explosion of easily accessible information, access to low-cost transactions, and enhanced transparency has been hugely beneficial. Consumers can better educate themselves about a wide range of financial topics. The cost of doing basic kinds of things (e.g., buying a stock or a mutual fund) has plummeted. And there is more transparency in general, which benefits consumers.
So why are so many families still so ill-prepared for their financial futures? And why has anxiety about financial security never been higher in the US? Perhaps because getting good financial advice requires more than a web search.
Good Financial Advice is Holistic
Until the basic tenets of economics1 no longer apply, the vast majority of financial decisions are not unidimensional; they reflect multi-faceted tradeoffs. That poses a huge problem when it comes to using web searches for financial advice, because by their very nature such queries yield specific, narrowly defined results. Yet deep and narrow information isn’t particularly helpful when the question you’re facing is not about something in an absolute sense, but rather about that thing relative to or in conjunction with everything else in your financial life. In other words, good financial decisions always require context, and context isn’t something you can google.
Take, for example, retirement income. When you google “retirement income security” you get – in addition to the predictable sales pitches for insurance and annuity products – a lot of information about IRAs and 401(k)s, pension funding, and portfolio longevity strategies. That’s all interesting, but it doesn’t really answer your question, which is practically speaking how to comfortably finance your retirement. In particular, it ignores a ton of things that could be highly relevant to your underlying goal, e.g., retirement real estate strategies, Social Security decision making, tax strategies to enhance after-tax cash flow, asset-based borrowing options, approaches to minimize health care costs, or long-term care planning to avoid depleting your assets later in life – not to mention the possibility of retiring abroad.
Web searches are pretty good at getting you more information about the veins on a leaf, but they’re not at all good at building you a picture of the forest as a whole.
Good Financial Advice is Personal
Internet searches don’t know who asked the question, or why you asked. They are generic at best. Unfortunately, generic financial advice is wrong for some people and may be disastrous for a few. Would you walk into a pharmacy and ask for medicine – just any medicine? Of course not. You want the medicine that will cure the specific disease you have, and nothing else. And you absolutely want to avoid medicine you may be allergic to, even though it may be a good choice for other patients. Yet, strangers ask me all the time what they should invest in, whether they should get a reverse mortgage, or how much money they need to retire. My answer invariably is, “I don’t know, because I don’t know you, your circumstances, or your specific needs and goals.” A web search won’t come with a similar warning.
Good Financial Advice Takes Human Behaviors into Consideration
It’s the Fall of 2008, and the stock market is plummeting. The whole financial system seems to be tottering on the brink of something unthinkable. A famous financial TV personality screams at you that you should “sell, sell, sell!!” Is that good financial advice?
In fact, it is horrible advice, and not because selling would necessarily be the wrong thing to do in all cases (see above). It is horrible advice because it preys on well-known frailties in human decision-making in order to sell airtime (or gain eyeballs). It is worse than self-serving; it is predatory. In contrast, good advice would help you separate out your emotions and unexamined reactions from the facts of the situation, and then help you address both. A good advisor will not only address the financial facts, but also the emotional ones.
Good Financial Advice Puts Your Interests First
Just because you find something on a website doesn’t mean it isn’t biased. Flo might be able to help you find cheap insurance, but I doubt she can tell you whether cheap insurance is the right choice for you. The fact is that the overwhelming majority of organizations that give out financial information or advice over the Internet are still there to sell you something. They have a motive of their own. Your mutual fund company, your insurance company, and your discount broker will all offer you financial advice – but will they recommend another company’s mutual funds, insurance products, or stock transactions? I think not.
Only Registered Investment Advisers are specifically in the business of giving their clients advice that puts those clients’ own interests first. A good RIA advisor or financial planner, like a good doctor, will seek to educate you, to look for problems before they become serious, and to tell you things you don’t necessarily want to hear if you need to hear them. A good advisor will measure her success by your long-term success, and not by the company’s sales results or stock price.
Knowing and Doing are Different Things
Reading a Chinese dictionary doesn’t make you fluent in Chinese. It’s easy to forget that money is not just about knowing; it’s about doing the right thing and achieving the results you want over the long term. Financial literacy is a performance art, and good financial advisors are coaches. If you happen to be one of those rare individuals who practice perfect follow-through on your intentions and goals, bravo! But most of us business professionals do vastly better with a bit of help – help with getting organized, with better understanding the decisions we’re facing, and especially help with follow-through that may involve various different kinds of financial products and service providers.
Internet searches can help you know more facts. They won’t partner with you to help ensure you achieve the results you want.
Good Financial Advice Can Be Affordable
A common misperception is that individualized, fiduciary financial advice is available only to the richest among us – as opposed to ‘free’ advice via the internet. That is simply not true. There are many options available, from flat-fee structures to lower pricing for entry-level clients. And when advisors earn their fees based on a client’s long-term wealth over time, their interests are perfectly aligned with those of their clients. In addition, transparency regarding fees and potential conflicts of interest is important for consumers who want to make an informed decision about an advisor on whom she will rely for unbiased help in building and executing a long-term financial plan.
1. The scarcity principle in economics states that needs and wants will always exceed available resources.