Credibility of financial blogs is questionable

Sep 4, 2007 @ 12:01 am

By Aaron Siegel

NEW YORK — Investors surveyed by Spectrem Group admitted to reading at least one Internet blog to obtain financial information.

According to an article in the August edition of Chicago-based Spectrem Group’s monthly High Net Worth Advisor Insights newsletter, 14%, or 106, of the 758 investors surveyed said that they checked at least one financial blog for industry information and trends.

The Wall Street Journal’s blogs topped the list, with 13 users.

Rounding out the list were blogs produced by Yahoo! Financial of Sunnyvale, Calif., The Motley Fool of Alexandria, Va., Boston-based Fidelity Investments and Redmond, Wash.-based Microsoft Corp.’s MSN Money. They had, 10, nine, eight and seven users, respectively.

“There seems to be a disconnect as to what is a blog and what is a legitimate article,” said Eduardo Eusebio, editor of the High Net Worth Advisor Insights. “Maybe the media is encouraging blogs, because the line between a financial blog and a financial news story is becoming more blurred.”

“Within the past few years, you are seeing much of the mainstream media grabbing the floor and have created blogs as another tool for content delivery,” he said.

Credible information

Despite the concerns about blog content, Mr. Eusebio noted, the affluent are saying that they believe that the information they read is credible as long it comes from a credible website.

Robert Ellis, a New York-based senior analyst at Boston-based Celent LLC, noted that the top five blogs in the survey are all from credible sources, but he added that there are many shady options in the wealth management “blogosphere,” which is 1 million websites strong.

According to Mr. Ellis, blogs can be broken down by those that use credible sources from professional journalists and others run by non-professional sources and non-journalists.

“When a blog is written by a respected journalist who is an expert on the topic that they are writing about, I see that as somewhat beneficial,” he said. “With a blog, you can get additional feedback, and I see that more as enhanced journalism than financial advice.”

However, blogs run by non-journalists are “just dangerous,” Mr. Ellis said. “You don’t know about the credibility of the author, and you don’t know the credentials of the respondents on the blog.”

The founder of a high-net-worth adviser group cited the accounting scandals of 2001, a loss of faith in Wall Street analysts and a more empowered and sophisticated investor as the engines behind the push to obtain information from different sources.

The shift to blogs is “an indication of how investors yearn for accurate information, and they don’t place trust in their peers,” said Charlotte Beyer, founder and chief executive of Institute for Private Investors in New York, which is open to investors with $30 million or more to invest. “It is a whole spectrum of different opportunities that ultrahigh-net-worth investors have today. “What used to be done on the golf course is now done online,” she added.

However, she said, the group warns people to use rigorous safeguards when reviewing the information that they read online, as such information could potentially be a “recipe for disaster.”

Drew McCoy, chairman of the Advisor Council of the Washington-based Wealth Advisor Institute, has similar concerns. “While I don’t have any clients who admit to using blogs, my concern is that it has become the new cocktail party when it comes to investing conversation,” he said.

“There is great danger in that, because the ability to have wide-scale dissemination of that sort of blogging can open itself up to pump-and-dump schemes,” Mr. McCoy said.

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