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Inaccurate Marketing

Young business man asking to stop right there

In one of the airports I frequent, I see ads for an advisory firm touting its low investment fees and showing comparisons of projected investment returns utilizing low and higher investment fees with the conclusion being that lower fees are better.

When I overnight in that city, I also see this firm’s television ads, again touting their view that lower investment fees are always better than higher fees.

I’m reminded of that modern Latin phrase, ceteris paribus, meaning “all else being equal”. So, lower investment fees are better than higher ones, ceteris paribus.

What’s the difference? Let’s use an example outside of our industry. My good friend Neal is an excellent real estate attorney. He’s helped me purchase a couple of homes, refinance those homes, etc. and I recommend him in a heartbeat, as I have to my own children, and to anyone needing a real estate attorney. Plus, his hourly fees are extremely reasonable. But what if I need a top-notch securities attorney to represent me? On an hourly basis, Neal would be much less expensive than any securities attorney. So, would Neal’s lower hourly fees be better for me? Probably not, because ceteris paribus, Neal does not have the requisite knowledge base required to help me with securities issues. It’s not Neal’s fault, it’s just not his area of expertise.

In the past, when I’ve seen this firm’s ads at the airport or on television, I’ve just chuckled to myself until I received an unsolicited booklet from them in the mail recently.

Again, the discussion about lower versus higher investment fees was presented. Also, a clear focus on utilizing indexed funds is preferred by this advisory firm which is a contributing factor for their lower fees. I know there is a heated debate between passive and active investment management and that’s a discussion for another day, though there is some correlation to fee structure inherent to each. I’m sure that even within passive investment devotees, there’s probably opinions relating to indexed funds compared to exchange traded funds (ETFs).

I’m convinced that there is no one right answer for all clients. But here is what I take issue with in this firm’s booklet:

“A large corpus of academic work shows that investors in low-fee index funds, practicing what is called ‘passive’ investing, long-term outperform almost all active mutual funds, stock pickers, annuity products, and whole-life insurance concepts.”

Can you compare low-fee index funds to “annuity products and whole-life insurance concepts”?

What low-fee index fund can provide guaranteed growth and income for life? Only annuities and certain life insurance contracts.

What low-fee index fund can provide guaranteed chronic illness/long-term care protection? Only certain annuities and life insurance contracts.

What low-fee index fund can provide guaranteed death benefit coverage? Only certain annuities and life insurance contracts can.

If your business model is predicated on low-fee investing, so be it. I’m not in the least bit against that. But, ceteris paribus, the marketing materials used should be fair and unbiased and, in this case, either delete references to annuities and whole-life insurance or better yet, acknowledge that these products could be so different than what is available through normal investment channels that they need to be considered and incorporated within the investment plans of many clients.

Michael S. Pinkans, CFA, is Executive Vice President & Chief Marketing Officer for Zenith Marketing Group with headquarters in Freehold, N.J.

Investment adviser representative and registered representative of, and securities and investment advisory services offered through Voya Financial Advisors, Inc. (member SIPC). Zenith Marketing Group, LLC is not a subsidiary of nor controlled by Voya Financial Advisors, Inc.



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