See the link below for a great whitepaper from Morningstar on several rules-based (quantitative) ETF strategies. They follow my general rules about investing:

1- Model – use simple rules that have been tested over time
2- Efficiency – eliminate as much drag as possible (i.e. don’t pay for product, pay for process)
3- Automate – systematize as much as possible (like hiring my firm to do it for you)

Many of you will recognize some of the ideas and techniques they use (like Simple Moving Averages). I use similar methods for a couple of my model portfolios.

The other big takeaway is their focus on ETFs. If you currently have a portfolio of mutual funds, it would likely save you a good amount of money by switching to an ETF of the same asset class or sector. Just another way to be more efficient.

Click here for the paper. (Thanks to Mebane Faber for the link/PDF!)

Conflict of interest. (click for larger image)

I was given a copy of the USA Today “money” section recently by a friend. They wanted me to see an article about choosing a financial adviser. I thought the article had some decent ideas about asking questions, but it didn’t seem to go far enough. Then I realized why.

Conflicts of interest.

For example, the section on “What you should ask your financial planner” had decent questions like:

1-What licenses do you have?
2-How are you compensated?
3-What organizations are you and your firm regulated by?

The problem is they didn’t provide any idea of what the answers should be. BTW, the correct answers are: 1-Series 65 ONLY (if Series 7/6/63/24 etc. leave immediately), 2-Fee-Only (not “fee-based”, fee-plus-commission, or “you don’t pay me, I’m paid by the product companies”), and 3-The SEC or State Securities Division (not FINRA or the Insurance Commission).

Once I looked below the fold it was easy to see why the article was incomplete. There was a huge, half-page (and expensive) advertisement for a high-commission, high-surrender charge, expensive variable annuity company. There’s also a little summary box titled “Retirement Tips” with loaded questions to push people towards annuities.

Who’s Best Interests?

The problem with this type of article is that USA Today has a clear conflict of interest. Here are some questions we should ask USA Today:

1-Are you compensated by financial product companies which refuse to act in clients best interests? (aka fiduciary standard)
2-Don’t you think it’s important for investors to understand the difference between investment advisers (fiduciaries) and financial advisers (salespeople)?
3-Shouldn’t you have a disclaimer saying “USA Today gets big money from our advertisers. We have no duty to suggest what is in our readers’ best interests. We do, however, have a duty to keep our advertisers happy so they will keep spending money with us. And so we can keep our jobs.”

The same could be asked of lots of other financial/investing/money related publications. I’m not saying USA Today is intentionally trying to sabotage their readers. But I think it’s important for the readers to understand that the information they get may have a bias.

Just be mindful when you get information from any source (including me) that there may be conflicts, so it’s worth asking…