The investment industry teaches us what we need to know about investing. A big problem is much of academic research contradicts it. Three quick examples:

(i)  High-priced advisors choose good investments.

(ii) Top-performing funds consistently perform well.

(iii) Expense ratios tell the charges you pay for investments.

There has been extensive academic research showing these are not correct. But how to find out?  The standard remedy -- buyer beware -- doesn’t work well if the buyer has no idea what to look for or where to look. 

Banks, brokers and advisors offer their version of what investors need to know, but it has been light on academic research and heavy on sales subtleties pushing high-margin products.

WHAT HAPPENS IN ACADEMIA, STAYS IN ACADEMIA

Most academics are sadly under-utilised.  While more neutral than industry players, professors are known for keeping their wisdom to themselves.

When they come down from the ivory towers, it is to present mathematical papers to other professors.  It impresses colleagues and contributes toward job tenure, but does little to enlighten the man on the street.

In a way, it is not their fault.  There is no easy mechanism to get professors and other academics involved.  It is not in their job description. For most, the closest they get to real-world problems is a once-in-a-lifetime letter to the editor.

Financial education has been like this for the past 50 years and is unlikely to change soon.  The industry is content with the status quo. No one else has the money or motivation to change it.  It's why you see advertisements for unit trusts but never see one that says: "This unit trust is over-priced.  Don't buy it."

It leaves consumers hopelessly naïve about how investments really work except -- of course -- for an enlightened few, like yourself.  The banks, brokers and advisors haven't pulled the wool over your eyes, have they? 

Here is a quiz to find out. It has six easy true and false questions. If you answer even one correctly, give yourself an A+. You are qualified to go forth and practice “buyer beware”. 

Take this FUN AND EASY QUIZ