Unreliable Financial News Making Investing, Retirement Decisions Harder

There are some things plan advisers and sponsors can do to help defined contribution (DC) plan participants refrain from reacting to unreliable financial news.

Unreliable financial news is impacting Americans’ ability to make retirement, investment and health care decisions, according to a telephone survey of 1,018 adults conducted in March 2017 for the American Institute of CPAs (AICPA) by Harris Poll.

Kelley Long, CPA/PFS and member of the AICPA Consumer Financial Education Advocates group, who is based in Chicago, explains that such news includes articles with scare tactic headlines that really have not a lot of basis. It can also include phishing websites, such as “Click here to learn more about how you can make $10,000,” then it steals a person’s financial information. In addition, reactions to world news, such as the Greek financial crisis and Brexit caused people to reacted strongly, and they lost money.

The survey found more than three in four (77%) Americans feel it’s important to act fast to make financial decisions when breaking financial news becomes available, with 40% saying it’s very important to act quickly.

Financial news mediums use scare tactics based on something happening every day that investors shouldn’t react to, Long says. She notes that defined contribution (DC) plan design intends to discourage participants from playing the market. “With mutual funds, you get end-of-day pricing no matter when you make a call to change investments. Participants don’t understand that,” she says.

There is widespread awareness about the issue of unreliable financial news. Nearly three in five Americans (58%) believe unreliable news is a serious threat to their financial decision making, with more than half of those saying the threat is very serious. Those sentiments are consistent for both genders, among household incomes and across generations.

According to the survey more 63% of Americans say the spread of unreliable news has made it more difficult to make critical financial decisions. Specifically, they’re having a harder time with health care decisions (44%), investing in the stock market (40%), retiring (36%) and buying or selling a house (35%).

“There are people who are afraid of losing all their money and feel they can’t retire. They invest too conservatively for their timeline,” Long notes. “In addition, pre-retirees move everything to cash, but when the market doesn’t fall, they move back to equities. This does them harm, and they accidentally delay when they can retire.”

NEXT: Helping participants not react to unreliable financial news

Long has a few suggestions for plan sponsors and plan advisers to help participants not react to unreliable financial news. First, she says there is and information technology (IT) solution. The plan sponsor’s IT department can be aware of sites that offer unreliable financial news and put up a firewall so employees don’t click through,” she suggests.

Long also says plan sponsors and advisers should provide participants with education about how to be a smart investor and how to recognize unreliable news.

As far as plan design, she says, “One client we worked with only allowed employees to make investment changes once a year during a three-month period. This is a best practice. Employees can’t react unreasonably, and it forces employees to take a long-term view and analyze their investments once per year.” She also says it reinforces the fact that the plan is meant for long-term investing.

If such a practice is not possible, Long says, plan sponsors can make participants who want to make a change talk to the plan adviser first to make sure it’s the right decision.

Unfortunately, most Americans don’t think the problem of unreliable financial news will be resolved in the near future. Only 14% say they expect unreliable financial news to become less prevalent in the next year or two, with 32% saying it will stay about the same. A majority of Americans (51%) expect unreliable news and misleading headlines to get more prevalent, with more than half of those saying that it’s going to get much more common.

Fake news is nothing new, but increased awareness of the threat it places on financial decision-making can help keep Americans from being lured into making decisions that will hurt them financially, the AICPA says.

The poll was conducted by telephone within the United States between March 24 and 27, 2017, among 1,018 adults (505 men and 513 women ages 18 and older) including 650 adults self-identified as “non-retired” and 322 as “retired.”