Many readers felt that the criticism contained in a post last week on some of the conclusions drawn from a survey contained in a report titled The Value of Advice put out by The Investment Funds Institute of Canada’s (IFIC) report did not go far enough. They ripped apart the report’s junk science that found an association between households that received financial advice and their average investable assets.
First, the report makes no mention of what they consider as “advice”. Canadian Financial DIY wondered if a mutual fund salesperson is really providing financial advice in the majority of cases. Though the report doesn’t explicitly mention it, I think the survey simply asked respondents if they received financial advice. If they replied they did, the household is classified as an advised household.
Readers such as Andy took issue with the use of averages. After all, the significant percentage of Canadians who save very little have little in the way of investments and are quite unlikely to hire an advisor. But the survey lumps these households with those of DIY investors. Andy points out that if the advised group contains 10 households with $60K in assets and 10 households with $100K, advised households have average assets of $80K. Contrast this with the non-advised group which contains 10 households with no assets (and thus do not require an advisor) and 10 households with $140K. Clearly, the non-advised households are doing much better but their group average is just $70K. In other words, do not trust studies that show that if you put your head in the freezer and feet in boiling water, on average, you’ll feel warm.
Michael James on Money opined that, if anything, the causation goes in the other direction. It’s not that households with advisors have more money. People with more money are more likely to have an advisor because advisors prefer wealthier clients. He calls the IFIC observation as a bit like trying to lose weight by doing poor cannonballs when jumping into a pool because you’ve noticed that fat people do better cannonballs.
Canadian Couch Potato has a very funny take on the IFIC study:
This just in: A report by Mercedes-Benz finding that most drivers of luxury cars are wealthy, while less affluent drivers tend to drive more inexpensive cars. “We believe this is evidence that owning a Mercedes is the route to financial freedom,” says Mercedes spokesperson Meg A. Bucks. “If more Canadians trades in their current vehicles and purchased a Mercedes, we are certain they would become wealthy.”
The Unbiased Portfolio and Sean flayed the IFIC for pretending to do a scientific study and presented biased conclusions. After all, if you work your way back from the conclusions you want, 19 times out of 20, you can gather data that fits your world view.
