There is a conflict of interest between analysts and clients. Analysts are often compensated by brokerage firms, and they are reluctant to make unfavorable recommendations. The bias may stem from brokerage commissions or from other factors. Share subscriptions require a large investment of time and relationship management, and an unenthusiastic report could discourage investors.
One method to combat conflict of interest involves identifying the source of investment recommendations. In a study by Hall and Tacon, they found that buy recommendations were associated with greater returns than sell recommendations. The authors suggest that this might be due to analysts issuing recommendations after receiving news about a company’s earnings or financial results.
Another method of evaluating investment recommendations was by identifying individual managers. Despite the fact that individual managers are publicly listed, they do not have a monopoly on performance. The researchers found that males with more performance than females received less clicks than their female counterparts. These results suggest that male fund managers were unconsciously filtering their recommendations based on gender. Despite this, the users said that they only cared about performance.
Regardless of the method used, it is important to assess your financial position before investing. Investments should be carefully researched and documented. The process of creating a comprehensive financial plan starts with identifying your needs and objectives and should include a comprehensive assessment of your finances. You can create an advisory account with a financial planner to gain control of the investment process. Mutual obligations are essential to a productive advisory relationship.
