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What Big Banks Don’t Want You to Know

If you think you’ve seen enough ads and marketing pitches on credit cards, banks, check cashing and other financial services, you’re right.

For every dollar that the financial services industry spends on educating consumers, $25 is spent marketing to them, according to a recent report from the Consumer Financial Protection Bureau (“CFPB”), a new federal agency launched as part of the Dodd-Frank regulatory overhaul.

What does that mean?  As CFPB Director Richard Cordray said in a statement, “When consumers receive the vast majority of their financial information from companies that are trying to promote an image or sell products, consumers have very little unbiased information.”

The numbers are astounding. The bureau found that while the financial services industry spends about $17 billion each year on marketing financial products and consumers, the nation (including federal, state and local governments, non-profits AND financial institutions) is spending approximately $670 million on financial education. On a per person basis: $54 per person per year of financial marketing and $2 of education.

While the study was limited to consumer financial products and services like credit cards, banking services and mortgages (and excludes investments), it underscores the need for an unbiased voice in financial services to help consumers make informed decisions.

Luckily, when you’re navigating your investments, the SEC has labels that can help you more easily identify unbiased advice – much like FDA labels help you sort out what you’re getting in your food.

There are two important designations for types of companies: broker-dealers, which employ registered representatives, and registered investment advisors (“RIAs”).  Broker-dealers, as the name implies, buy and sell securities for their clients.  While they’re required to make “suitable” investment suggestions, they are not under the same fiduciary standard as RIAs. As the Supreme Court outlined in the landmark case SEC v. Capital Gains Research Bureau in 1963, the fiduciary standard is an “affirmative” duty to act in the best interests of your clients.  In other words, they’re liable to their clients to act in their best interest.

So if you’re looking for unbiased investment advice, you’ve got a few options.  If you’re looking for an introduction to investing, the SEC’s website called does a good job laying out what your options are (it has a particularly strong section that pertains to avoiding investment fraud).  We think that Khan Academy, another Silicon Valley start-up, is off to a good start when it comes to educational materials on the ABC’s of finance.

But you can also lean on SEC labels.  Don’t be afraid to ask your advisor what designation he or she falls under.

Personal Capital Advisory Services is an RIA.  When we launched after the financial crisis, we selected that designation to signal our commitment to act in the best interests of our clients and deliver unbiased advice.  While along with any other private company, we have a marketing budget to generate awareness for what we do, we’re subject to the fiduciary standard in our mission to help Americans lead better financial lives.

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