It's Just Money: Saw this ad for a popular online broker recently

October 02, 2007

Saw this ad for a popular online broker recently

I was cruising around Yahoo Finance today when I stumble upon this ad...

So, here's my gripe. What exactly are they advertising? Here are my best guesses.

"We will beat the market." The "whole market" will be up 12% and you'll be up 13%, or 15%! Or at least 12%. but certainly no measly 10%. Really? You promise? So, here's my beef with an ad like this. What do you mean by the "whole market"? The large cap growth oriented S&P 500? The US centric Wilshire 5000? How about the MSCI EAFE for foreign stocks? Is that part of the "whole market"? Even then, it's pretty much a developed markets large cap growth index. So, how about emerging markets? Effectively, you have derided an unknown broker for slight under-performance of an unknown, nebulous, or arbitrary benchmark.

What if the client has expressed some desire to be a bit conservative. The photo seems to imply otherwise. He seems to be a young, upwardly mobile, successful man. These are all attributes we equate to a more aggressive investor. But we're being a bit presumptuous aren't we? What if he is caring for an elderly parent and a special needs child, so feels that he cannot afford significant investment losses? Doesn't a reduced standard deviation make sense?

Maybe what the ad is saying is, "we won't mislead you." You know, maybe they're implying that by telling you that being up 10% is good news, the scheister is misleading you because there's more to the story. But, again, we don't know anything about the discussions that our young shaving client had with his broker. Maybe their long term target rate of return was 10%, or 9, or 8. If that is the case, isn't a 10% rate of return good news? What if the target rate of return was 12%? Then the news isn't tragic, but I wouldn't proclaim it "good news."

What else is wrong with this ad? Well, what is the time frame? 10% over what time period? One year? Six months? Five years? Kinda important.

So, what is good about the ad? Well, here is a young man, shaving, getting ready for what appears to be a professional occupation. The sort of occupation where appearances are a factor. And he's thinking about his portfolio. Hey, at least he's gotten started.

What else? I'm all for bashing the broker. Fact is, brokers are agents of their broker dealers, just as insurance salespeople are agents of their insurance company. They do not have a fiduciary responsibility to their client. Go check out the site Focus on Fiduciary. There's great info about the difference between a fee only financial fiduciary and a broker or insurance agent.

Oct 2, 2007 11:31:13 AM | Behavioral Finance, Investing, Money Psychology

11 Comments

I'm thinking that they are talking about the large commissions with a regular broker vs. a low cost online broker. You can buy the same fund using a company like E*Trade or using a higher priced firm like GoldmanSach's. The whole fund could go up 14%, but because of the higher commissions you might only get 12%. I get the ad, but still a good argument.

Posted by: Jeremie | October 06, 2007 at 09:12 AM

"The photo seems to imply otherwise. He seems to be a young, upwardly mobile, successful man."

This post has everything to with how this ad looks to YOU. I won't attempt to discuss what they are advertising exactly, but I will look at it from a marketing perspective.
Certainly, this ad is going to have different responses to different target groups, but if you notice it, click it, tilt your head a little and then click it, write a post about it, -- well my friend the ad did it's job.

end of story.

Posted by: Millionster | October 06, 2007 at 09:55 PM