If you could see the spin on a pitch from a Major League baseball pitcher, you would probably have better success as a batter. The same holds true for figuring out the marketing spin on various studies reported by people trying to sell you things.
Most marketing focused research is guilty of drawing incorrect conclusions. For example, if I were to tell you that the subjective rating of the quality of a photograph increased based on the type of camera used, you might not think twice about it. A picture taken with a $10,000 camera and lens combination versus a picture taken with a camera phone would intuitively be expected to be better. A study looking at thousands of pictures taken with different levels of camera equipment will show a correlation. But does that prove causation? No.
Chances are that most people would not buy $10,000 worth of camera equipment, unless they had been practising and studying photography. Conversely, I know some professional photographers who make pictures taken with a camera phone look better than anything I could pull off with their professional equipment. They know how to play with angles, lighting, positioning of the subject, and so on.
So a simple study looking solely at two variables - subjective quality of pictures and cost of camera equipment - will be able to tell you about correlation but cannot prove causation unless you control for other possible factors. One of the factors would be to control the level of experience of the photographer. This would help to explain how Damon Winter of The New York Times recently won a third place award from Pictures Of The Year International using an iPhone.
The Financial Planning Standards Council (FPSC) recently released an initial study which looked at the emotional and financial well-being of those who used a certified financial planner (CFP), non-certified advisers, or no adviser at all. It should come as no surprise that those using a CFP scored higher with respect to feeling closer to achieving their goals and had a higher net worth.
What is surprising is that some have interpreted the results to conclude causality definitively. "The results I read can be readily explained by the fact that advisers seek wealthy clients. Wealthy people are more likely to have advisers and wealthy people are more likely to feel good about their finances," says Michael J. Wiener, author of Michael James on Money blog and a cryptographer by training.
There are other biases in the study. For example, the study is only in its first year of five. The authors expect an attrition rate of 25 per cent of respondents per year, those who will fail to continue providing information. Over time what might be left is a sample of people who may naturally like structure and are more likely to follow through with any plan, financial or otherwise.
Dan Hallett, director of Asset Management for Oakville, Ont.-based HighView Financial Group adds, "But in fairness to the FPSC, there may not be a valid way of completely removing such biases. … I think intuitively it makes sense that people who receive advice from a qualified, credentialed professional will generally be better off than those who go it alone."
I agree. It would be difficult to test for the efficacy of financial planning in a real world study, but I absolutely believe that financial planning works.
The point of this column is to get you to start thinking critically about the various studies released into the media for consumption. Is there causation? Or only correlation? The studies could be about financial services, photography equipment or anything else under the sun, but how's this for a curveball: just because correlation can not always prove a causal relationship, it can not always disprove one either.
Preet Banerjee, B.Sc, FMA, DMS, FCSI is a W Network Money Expert and blogs at wheredoesallmymoneygo.com. You can also follow him on twitter at @PreetBanerjee.
Preet Banerjee