Financial Advice, Ethical?

by DiNatale10 on April 7, 2015 - 3:12pm

Many factors influence current markets, of which, one is investor confidence which can be defined as the belief that the asset in question (stock, bond, etc) will increase in value or decrease in value. Moreover, investor confidence is usually solidified by well-known portfolio managers. For example, the S&P 500 is a trusted index by many investors because of Warren Buffet’s previous strategy of investing 90% in an index fund with 10% in short term investments.  Overall, the backing of a particular asset by a well-known portfolio manager will increase investor confidence; thus giving well-known asset managers the power to influence stock prices. Such power is easy to manipulate, many asset recommendations are held by the manager himself or his firm which makes decision biased.

                The situation can easily be unethical when the portfolio manager engages in an act called pump & dump. The pump part is when the advisor recommends a certain share, which will inflate the price due to the sharp increase of demand. Later, the same advisor’s net worth with the security in question rises as price rises. The advisor can now engage in the act of dumping which meaning that he/she will sell vast amounts of the stock, in other words cashing out. However, cashing out and selling vast amounts will in fact drive the stock price down as supply increases. This specific act is unethical because the advisor quite literally robs uneducated investors of their money. Moreover, the act is only illegal if the portfolio manager states false evidence to encourage the selling of a specific asset.

                There are many opportunities for portfolio managers and esteemed investors to advise a general public. For example, the BNN (the Business News Network) airs a daily show entitled “Market Call” where advisors recommend 3 stocks; usually, all three stock  have similar cap size and are in the same industry.  BNN’s show is nationally televised every day during market hours at 2:30 pm. Moreover, many of the recommended stocks follow a similar pattern. Most, if not all, experience a sharp rise is price within half an hour of the recommendation.  Moreover, most stocks continue to increase in value in the short run; however, not all securities are guaranteed to increase over time in the long run. On the other hand, the audience comprising mainly of uneducated investors believe that the stock can only increase due to all the positive hype for a well-known investor who may just be seeking to increase demand for his stocks, driving the price up only to cash out later on.

                Financial products are never guaranteed, and the Business News Network tries to reassure the audience that the products recommended on the show are not guaranteed to increase in value. First, the network does in fact have a disclaimer which states that advice is those of the experts and does not necessarily represent the views of the network   nor their parent company, bell. However, the disclaimer is usually disregarded by viewers and only there for legal purposes.  Therefore, the company reminds viewers of the potential financial risk by looking at the progress of previous recommendations or “top picks” by the same advisor. More often than not, the recommendations are accurate; however not to the extent as previously stated, while some have in fact, lost value. Overall, it is the viewers of the Business News Network that are responsible for properly attributing their funds instead of analysts themselves.

                However, the Business News Network should to some extent warn their viewers of potential loss of capital. Currently, the disclaimer is not enough; they could perhaps have a more attention capturing oral discretion rather than a text. An interesting oral disclaimer will capture more the attention of the audience. Such a disclaimer will discourage the impulse buying of assets. Discouraging impulse buying will encourage clients to be pensive before making a financial decision, to what could be a good or bad decision. Many of the top picks will be correctly forecasted in terms of positive and negative gain; however, investors must acknowledge that investments may decrease in value or will not appreciate as well as previously forecasted.

                In conclusion, the Business News Network does host well accomplished investors with good advice; however, there is potential for unethical manipulation such as the false advertisement of financial products for his/her own monetary gain. Therefore, the bell-owned business news source should advice customers that financial gain is not always guaranteed. Moreover, they should warn them thru attention seeking audio instead of the current bland discretion which seems to only be there for legal purposes. Furthermore, such a discretion will encourage people to think about making a financial decision.

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