I'm Not Unbiased

Warning: This post is a rant and contains foul language. Enjoy!

Tons of research suggests that people engage in deception and self-deception all the damn time. People are biased.

Despite this, pretty much every website offering reviews makes claims of objectivity and independence. These websites don’t claim that they try to minimize bias. They claim to actually be unbiased.

Let’s take a look at an excerpt from TopTenReviews, a high-traffic review site:

Methods of monetization in no way affect the rankings of the products, services or companies we review. Period.

Bullshit. Total bullshit.

I’ve ranted enough in the past about run-of-the-mill websites offering bogus evaluations. What about websites that have reasonably good reputations?

NerdWallet

NerdWallet publishes reviews and recommendations related to financial services.

Looking through NerdWallet’s website, I find this (emphasis mine):¹

The guidance we offer, info we provide, and tools we create are objective, independent, and straightforward. So how do we make money? In some cases, we receive compensation when someone clicks to apply, or gets approved for a financial product through our site. However, this in no way affects our recommendations or advice. We’re on your side, even if it means we don’t make a cent.

Again, bullshit.

NerdWallet meets Vanguard

Stock brokerages are one of the types of services that NerdWallet evaluates.

One of the most orthodox pieces of financial advice—with widespread support from financial advisors, economists, and the like—is that typical individuals who invest in stocks shouldn’t actively pick and trade individual stocks.² This position is often expressed with advice like: “Buy and hold low-cost index funds from Vanguard.”

Vanguard has optimized for keeping fees low and giving its clients a rate of return very close to the market’s rate of return.³ Since Vanguard keeps costs low, it cannot pay NerdWallet the kind of referral commissions that high-fee investment platforms offer.

What happens when NerdWallet evaluates brokers? Vanguard gets 3 out of 5 stars.⁴ It’s the worst rating for a broker I’ve seen on the site.⁵

NerdWallet slams Vanguard for not offering the sort of stuff Vanguard’s target audience doesn’t want. Vanguard gets the worst-possible ratings in the “Promotions” and “Trading platform” categories. Why? Vanguard doesn’t offer those things.⁶

Imagine someone going to a nice restaurant and complaining that the restaurant’s steak doesn’t come with cake frosting. NerdWallet is doing something similar.

The following excerpt comes from NerdWallet’s Vanguard review (emphasis mine):

Ask yourself this question: Are you part of Vanguard’s target audience of retirement investors with a relatively high account balance? If so, you’ll likely find no better home. You really can’t beat the company’s robust array of low-cost funds.

Investors who fall outside of that audience — those who can’t meet the fund minimums or want to regularly trade stocks — should look for a broker that better caters to those needs.

Vanguard’s minimum is $1,000.⁷ You shouldn’t buy stocks if you have less than $1,000 to put into stocks! If you invest in stocks, you shouldn’t regularly trade individual stocks!⁸

From my perspective, NerdWallet is saying that if you are (a) the typical kind of person that should be buying stocks and (b) you don’t use a stupid strategy, then “you really can’t beat [Vanguard].”

So there we have it. Despite the lousy review, NerdWallet correctly recognizes that Vanguard is awesome.

NerdWallet didn’t really lie, but NerdWallet is definitely biased.⁹

WireCutter

Sometimes evaluators aim to create divisions between editorial content (e.g., review writing) and revenue generation. I think divisions of this sort are a good idea, but they are not magic bullets.

WireCutter is one of my favorite review sites, but it makes the mistake of overemphasizing how much divisions can do to reduce bias:¹⁰

We pride ourselves on following rigorous journalistic standards and ethics, and we maintain editorial independence from our business operations. Our recommendations are always made entirely by our editorial team without input from our revenue team, and our writers and editors are never made aware of any business relationships.

I believe WireCutter takes actions to encourage editorial independence. However, I’m skeptical of how the commitment to editorial integrity is described. Absent extreme precautions, people talk. Information flows between coworkers. Even if editors aren’t explicitly informed about financial arrangements, it’s easy for editors to make educated guesses.¹¹

Bias is sneaky

Running Coverage Critic, I face all sorts of decisions unrelated to accuracy or honesty where bias still has potential to creep in. For example, in what order should cell phone plans I recommend by displayed? Alphabetically? Randomly? One of those options will be more profitable than the other.

I don’t have perfect introspective access to what happens in my head. A minute ago, I scratched my nose. I can’t precisely explain exactly how or why I chose to do that. It just happened. Similarly, I don’t always know when and how biases affect my decisions.

I’m biased

I have conflicts of interest. Companies I recommend sometimes pay me commissions. You can take a look at the arrangements here.

I’ve tried to align my incentives with consumers by building my brand around commitments to transparency and rigor. I didn’t make these commitments for purely altruistic reasons. If the branding strategy succeeds, I stand to benefit.

Even with my branding strategy, my alignment with consumers will never be perfect. I’ll still be biased. If you ever think I could be doing better, please let me know.

Footnotes

From NerdWallet’s “About us” page on 2/22/2019 (archived here).
For more, see Wikipedia’s page on the efficient-markets hypothesis. Even if you have the extremely atypical ability to beat the market without getting lucky, chances are extremely good that the opportunity cost of actively trading with your own money exceeds the marginal increase you would see in investment returns.

As an example of experts’ positions, the IGM Economic Experts Panel found strong agreement among a bipartisan group of economists on this statement (archived here):
“Unless they have inside information, very few investors, if any, can consistently make accurate predictions about whether the price of an individual stock will rise or fall on a given day.”
I’m skipping over a lot of nuance here. Different funds track different markets which each have their own rates of return.
See NerdWallet’s 2019 review of Vanguard (archived copy).
I’m not confident this is the worst rating any company gets, but it’s the worst one I’ve seen.
A table with ratings for each category and details can be found under the heading “Vanguard at a glance” in NerdWallet’s 2019 review of Vanguard ( archived copy). The scores for both the “Promotions” and “Trading platform” categories are detailed with “None.”
“The following minimums apply to individual and joint accounts, Roth and traditional IRAs, UGMA/UTMA accounts, and most other account types…
- $3,000 for most other Vanguard funds.”
From Vanguard mutual fund fees & minimums. Accessed 2/26/2019. Archived here.
On the point about not buying stocks if you don’t have $1,000 to put in—
If you’re buying stocks for entertainment or learning, it might be reasonable to put small amounts of money into them. NerdWallet doesn’t seem to be targeting people buying stocks for those reasons. It’s only worth investing in stocks for financial reasons when your expected return is sufficient to outweigh the fees and time involved in setting up a brokerage account. With under $1,000, the costs will probably outweigh the benefits.

On the point about active trading—
There are exceptions, but I think they are extrememly rare. Even if you have the very atypical ability to beat the market (after fees) without getting lucky, chances are good that the opportunity cost of actively trading with your own money exceeds the marginal gain you get in investment returns. If you are talented enough to beat the market, you’re probably smart enough to do things that people will pay a whole lot of money for (e.g., you could work for a hedge fund that has far more capital at its disposal than you do).
To be clear, I’m being hard on NerdWallet. NerdWallet does a good job aggregating information about financial services and offers decent financial advice in some areas. The evaluation methodology I’m criticizing may not have been maliciously engineered. NerdWallet may have stumbled into the current methodology. Still, there’s a big problem. Since NerdWallet’s current methodology is good for the company’s bottom line, NerdWallet has a strong incentive not to correct the obvious issues.
From WireCutter’s “About Us” page (archived here).
In many cases, guesses aren’t even necessary. E.g., commission rates offered by Amazon’s affiliate program are publicly available.

I’ve archived a copy of Amazon’s fee schedule here (accessed 2/25/2019).