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“Academic Studies” or “Cooked the Books”

August 16, 2010


This Wall Street Journal Story Focuses on Investments. The Ivory Tower Crowd is getting pay offs from big Pharma, Government, States, Agriculture, Dairy, Electric Companies. Their research and study is only as independent as long as the Academic Crowd are able to keep their funding sources secret.

As retirement investments, annuities have had their share of critics. But these days, when there’s an argument, people in favor of the pension-like products have the ultimate trump card: an authoritative report by experts from the University of Pennsylvania’s prestigious Wharton School. In it, finance professors address seven common annuity questions as “myths,” knocking each one down in turn, and say that experts worldwide have decided they’re “the best way to go.”

The study says one more thing: According to small, pale print on the cover page, it’s co-sponsored—that is, paid for—by New York Life, one of the nation’s biggest sellers of income annuities. The study’s lead author, David Babbel, a Wharton professor of insurance and finance, says its conclusions weren’t influenced in any way. “Once New York Life commissioned the study, they didn’t know what we were going to come up with,” says Prof. Babbel. “That’s just how it is.”

In recent years, financial-services firms have found a new tool to help them drum up customers: the academic study. These papers are finding new life beyond the ivory tower, echoing the widely used—and controversial—medical research funded by pharmaceutical and other medical companies to back new drugs and devices. The studies cover the gamut of investing topics, including how best to pick mutual funds, set up a retirement plan or boost portfolio returns. The universities facilitating these studies and the professors writing them say they don’t allow sponsors—which typically pay anywhere from $5,000 to $50,000 for research—to do any meddling, and that academic freedom is always maintained. And the companies footing the bill say they’re attracting attention to important financial issues.

But some critics dislike the idea of the financial sector tapping academia for market-driven research, whether it’s designed to shape the debate over regulatory reform or influence brokers and advisers—and their millions of clients. It’s “the equivalent of the cigarette companies promoting smoking as a healthy lifestyle,” says Brian Breidenbach, a Louisville, Ky., adviser who manages nearly $400 million and says he receives a steady stream of studies that read like marketing brochures.

DIY Due Diligence
With more financial firms paying for academic research that supports their products, consumer advocates say the buyer-beware quotient only increases. Here are some tips for deciding your next investing moves.

Surf for second opinions: If your broker tells you the best research supports his suggestion to, say, buy a target-date fund, check websites like Google Scholar and to survey all the research and find alternative views. Keep an especially close eye on the first few pages of any study, where authors typically disclose industry ties and financial support of their research.Get your own explanations: Websites like are helpful for offering fast answers on how different investment products work., created by an AARP subsidiary, features a “jargonator” for translating commonly misunderstood financial terms.Bulk up your bookshelf: For five consecutive years before the 2008 market crash, personal-finance books topped the list of business best sellers. Many investors say that financial literature is too hard to understand, according to a survey by GfK Custom Research. But publishers say their emphasis is now on titles that are easier to follow.Consider fee-only advisers: Fee-only financial planners often dig deeper than other brokers and advisers for independent research and “tend to be more academically oriented,” says Sean Cunniff, a director in the brokerage and wealth division of research firm TowerGroup.Frequently, critics say, sponsorship of such studies is disclosed only in pint-size print—or sometimes not at all. (New York Life, which says its annuities study underwent “rigorous peer review,” updated its website after SmartMoney pointed out that its references to the research did not mention the company’s sponsorship.)

“Academics need to be more concerned,” says George Loewenstein, a professor of economics and psychology at Carnegie Mellon University who has published studies about conflicts of interest. “Business schools are way behind.”

It was the medical profession, of course, that sparked the first real public outcry over corporate-funded research. After regulators exposed cases in which researchers doctored data in favor of drug companies, oversight of medical-school faculty tightened. “If people step over the line, it ends up being a big brouhaha,” says James O’Toole, professor of business ethics at the University of Denver.

But business schools say keeping the corporate world at arm’s length would run counter to their core mission. Many explicitly encourage professors to work as consultants and conduct research about, and for, the corporate world.

And the schools themselves are not shy about working with companies. Vanderbilt University, for one, has an industry-funded center that studies the financial markets, while the University of Michigan Ross School of Business awards one instructor a year-long, company-funded scholarship—the NBD Bancorp Assistant Professorship in Business Administration. A Ross School spokesperson says that, while the sponsorship supports the professor’s research, the bank’s owners get “nothing in return.”

Hans Stoll, director of Vanderbilt’s Financial Markets Research Center, says business schools have been accused of not being close enough to the real world. “The connection to business is desirable. I don’t think we want to sever that on the altar of conflict of interest.”

Still, ethics experts say that appearance issues alone create grounds for serious concern. Over the years research for hire has defended some of the industry’s most controversial products, including subprime mortgages and risky derivatives.

The lines can become more blurred, of course, when employees at financial firms keep a foot in academia as well. After a long teaching stint, for example, Brian Jacobsen became the chief portfolio strategist at Wells Fargo Funds Management while maintaining his part-time associate professorship at Wisconsin Lutheran College. He says he is given the freedom to write what he wants, but in his papers, he has defended business practices that are aligned with Wells Fargo’s, including trumpeting the advantages of actively managed portfolios and fund-marketing fees. (“Sometimes you get what you pay for,” he says in one study.) School officials say they’re comfortable with the arrangement, and Wells Fargo says it is simply encouraging different investment perspectives.

Experts say that a relatively small investment in research can help build what are already big-money businesses. Last year alone, annuities were a $300 billion business, while the fees for actively managed mutual funds exceeded $54 billion.

To be sure, few investors know that any of this research exists. But the companies sponsoring it send the results to financial advisers and brokers, who recommend products to their clients or quote the studies to confer an extra level of gravitas to their own marketing.

Many advisers, meanwhile, are just as concerned about the research they’re not seeing. Many firms require sponsored researchers to sign confidentiality agreements, a practice that can keep negative findings from getting publicized. It also puts authors in a thorny dilemma: If the results are ambiguous, says Ronald Duska, director of the Center for Ethics in Financial Services at the American College, “there’s a temptation to go the way of the company.”

For now, consumer advocates say, sponsored research needs more transparency. Most business schools say they require professors to fill out conflict-disclosure forms, but critics say they’d like to see those forms made public.

“I don’t think you can ban it,” says Ed Mierzwinski, consumer-program director for the U.S. Public Interest Research Group, of corporate-funded research. “But you should be able to expose it.”

See other Ivory Tower “Academic Studies” Fraud

Write to Neil Parmar at

One Comment
  1. Last year alone, annuities were a $300 billion business, while the fees for actively managed mutual funds exceeded $54 billion.

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