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Now That's Incredible! New Survey of Investment Information Sources
Gives Highest Credibility Ratings to Corporate Annual Reports,
Ahead of Journalism

Investors Use Internet More Than All Other Sources, But Give Web
Low Marks for Trustworthiness; Findings Are Latest Study
in Ongoing National Credibility Index

NEW YORK (March 2, 2000) - When it comes to making personal investment decisions, whom do Americans believe the most?

You can forget the Web. And your brother-in-law doesn't do so well either. In fact, in a new poll that should warm the hearts of CEOs and corporate communicators alike, the majority of those surveyed put their biggest faith in the most traditional of company documents - the annual report.

Not that individual investors aren't looking for some critical help and professional advice. A new National Credibility Index shows that corporate information is considered highly believable when it takes the form of a story in a financial or business newspaper, an industry expert and a professional financial planner, as well as "a stock broker you know." Even Warren Buffet couldn't plot out a better multi-tiered strategy for securing the best investment intelligence.

At the very bottom of the ranking of 38 different information sources were: a cold-call from an unknown stockbroker, a television ad or infomercial, and lowest of the low - a participant in an Internet investment chat room. Interestingly, online sources of various kinds, whether trading and financial Web sites or Internet ads, fell to the bottom third of the list, even though respondents admitted they frequent the Web for information more often than availing themselves of other sources that might have rated higher in credibility. (See table.)

While small investors have become hyperactive players in the public markets, dabbling in an ever-expanding universe of vehicles - from telephone-exchange mutual funds and 401(k) plans to online day-trading and stock-picker clubs - no one has previously canvassed opinion on which investment information sources are being accessed most, and which generate the greatest degree of public confidence.

Enter the National Credibility Index, an ongoing research effort created by the Public Relations Society of America Foundation to track the way Americans perceive information sources - institutional, governmental, corporate, media, even personal. Previous credibility surveys, conducted by Research/Strategy/Management, an Arlington, VA-based research firm, along with Columbia University, have focused on such topics as race and ethnicity, Social Security reform and the use of military force in foreign affairs.

Investor, Name That Source

"Having already established baseline attitudes on broad national issues and public policy, we wanted to test the Credibility Index in the context of personal investing, to see how consumers are coping with what has become an unprecedented flow of information, from sources with widely different points of views and agendas," explained PRSA Foundation president Jean Farinelli.

"The findings suggest that the average American is far more attuned to the nuances of financial information than might have been presumed, and that easy access to business news and information does not mean that the message is being swallowed whole," Ms. Farinelli added.

Moreover, she noted that despite the clear advantage enjoyed by the Internet as a communications channel, "individuals appear to give more credence to traditional media in arriving at investment choices, where greater weight may be given to analysis and objectivity. Of course, the data also shows that Americans still put a lot of stock in designated 'experts.'

The new Investor National Credibility Index was based on a nationwide poll of 1002 adults. Here are key findings from the final research completed in January by Columbia University:

• A 50-point spread spanned the National Credibility Index's mean ratings, with annual reports achieving the highest average score of 82 for overall credibility (out of 100), while chat room tips received a mean rating of only 31. In terms of broader grades across several credible vs. non-credible categories, the spread was greater -- annual reports achieved a score of 91% vs. only 20% for Internet chat sources.

• As a group, established "wise men" received the best mean ratings, led by business experts and financial advisors (both hitting 79), and stock brokers known to respondents (77), but also consumer advocates (72), business school professors (71), and advisories from large investment institutions (71).

• Print journalism sources generally rated well, but respondents had definite ideas about their respective degrees of credibility. National business newspapers such as The Wall Street Journal topped all media at 81, ahead of slicker magazines such as Forbes or Fortune (77), and also specialized investing magazines (73). Local daily papers, with fewer business reporters to provide "expert" analysis and in-depth coverage, received a 61 rating, the same as an investment advisory newsletters. The latter boast greater sophistication, but may also raise questions about publishers' objectivity -- experts with a bias.

• The proliferation of business and investment news on television has spawned a whole new advertising medium, but has it really helped investors? Respondents placed TV business news in the bottom third of reliable sources; its mean rating of 56 falls 24 credibility points below the best sources in print news.

• Although an annual report - governed by legal and regulatory rules requiring full disclosure to shareholders - is deemed the most believable source of investment information, the same can't be said for individuals within a corporation. Chief financial officers rate highest at 70, below consumer advocates and university professors, but above chief executive officers and company presidents, both of whom receive ratings of 65 - below more personalized sources such as a friend in the business (68).

• Union leaders, who a generation ago might have commanded serious respect in advising on personal finance matters, have waned in influence here as in other facets of American life. Their credibility ranking was a marginal 49, just ahead of a blind investment prospectus received in the mail. Faring only a tad better were government regulators (52), whose neutrality and good intentions as sources of information appear to be suspect.

• One area of business media that lagged behind the class was corporate reputation ratings - magazine features showcasing the best places to work, the most admired companies, the smartest CEOs. While they may say a lot to employees and industry-watchers - not to mention PR departments that tout their findings - such surveys, with a mean rating of 64, don't carry as much weight with investors as straightforward journalism.

Message to Corporate Communicators: Spend Your Dollars More Wisely

One of the most striking findings was the uniformly low ratings given to different forms of company advertising and solicitations. TV commercials, direct mail prospectuses and videos, infomercials, and Internet ads all received ratings well below 50, this despite a conspicuous surge in promotional information -- and spending -- related to investing over the last several years.

Clark Caywood, Ph.D., Secretary of the PRSA Foundation Board who chairs the Department of Integrated Marketing Communications at Northwestern University, said that corporations would be wrong to dismiss the latter showings as typical consumer skepticism.

"U.S. companies are pouring immense amounts of money and creative resources into corporate advertising and branding that, judging from the National Credibility Index findings, is falling on deaf ears," Dr. Caywood said. "The dot-coms are so eager to show Wall Street and their competitors that they have big ad budgets to burn, that many haven't considered how, or even if, their message is being taken in by millions of small investors."

Dr. Caywood noted the much higher ratings for financial journalism imply that companies might do better to bolster media relations efforts than spending another $10 million on advertising. "Even corporate newsletters rate a lot higher than advertising, as do representatives from senior management, further suggesting that individuals want to hear directly from companies on performance issues," Dr. Caywood said.

Where We Go vs. Who We Trust

The research found that easy access to investment information doesn't assure its credibility. When asked to name which sources they turned to most readily in formulating investment decisions, respondents identified Web sites more often than other outlets, even though online sources were regarded among the least believable.

Twenty-six percent of respondents said the Internet was their most frequent stop, compared with 24% citing professional advisors (brokers, planners, accountants), and 15% naming personal sources, including friends and co-workers, as well as personal research. General print media received a 15% frequency, while specialist media took 9%, as did financial institutions, including banks and "the firm that handles my mutual fund." The Wall Street Journal was the single most mentioned media source, at 5%.

Free public sources - such as the library and Better Business Bureau - appear to have faded from consciousness - only 4% of those surveyed said they utilize these institutions for investment information. But even these did better than television, called on by only 3% as a ready place to go for investment data - a cold shower for those who rush to tell their story on one of the many financial TV programs.

As for the credibility leader - annual reports - only 8% said they typically go right to the company for information, to review financial reporting, balance sheets, management reports to shareholders, and other corporate disclosures, even though this corporate performance report ranked at the top of believability.

A New Frontier for Investment Credibility: Annual Reports on the Web?

"Clearly, the Web has become the medium of choice for seeking out investment information today, though it has yet to become the medium of credibility," said Jean Farinelli. "Speed, convenience and sheer mass of information have powered the Internet ahead of other sources, including those with impeccable credentials - but so far, it still lags behind in the confidence department."

Ms. Farinelli posited that the same attributes that have benefited the Web also appear to leave doubts in many investors' minds that the medium is prone to rumor, personal bias and information overload. "It's as if investors are discounting Web-based information precisely because it is so accessible and often unsubstantiated," she said. "It will be interesting to watch its credibility performance change over the next several years, as investors learn to harness its power and as corporations make greater strides in integrating the Internet into their communications strategies."

Looking across the ratings, Ms. Farinelli noted one obvious union likely to improve corporate communications. "Companies that post their annual report and other financial disclosures on the Internet should do wonders to enhance their credibility - perhaps even better if they link their performance with published news accounts or analyst opinion," she said. Similarly, the findings portend the staying power of Dow-Jones Interactive and other established online financial news services as vital information sources.

"The good news from a communications standpoint is that the average American investor does seem to have the antennae necessary to distinguish between fact and hype, between objective sourcing and partisan endorsement," Ms. Farinelli said. "And a mere glance at the top six choices reveals that we are working from a healthy mix of sources in arriving at investment decisions."

As for those who do their investment prospecting in virtual chat discussions, Ms. Farinelli cautioned, "It's probably true that the person on the other end doesn't believe you any more than you believe him."

# # #

Note:
The PRSA Foundation National Credibility Index Ratings for Corporate Information Sources were based on a national telephone survey of 1002 individuals in October 1999. The study was conducted at Columbia's Institute for Social and Economic Theory and Research. Research support was also provided by Columbia's Center for International Business Education.

The research was directed by Dr. Robert Y. Shapiro, Professor of Political Science at Columbia University in New York. He was joined by co-developers of the National Credibility Index, Dr. Ronald H. Hinckley, president of Research/Strategy/Management, Inc. in Virginia, and John Budd, Jr., CEO of the Omega Group in New York, along with doctoral students Mariana Servin-Gonzalez and Serban Iorga.

A full white paper is available discussing the investment credibility research, including methodology, demographics, interpretation, and a set of surveyor questions. Let us know if you'd like a copy, or further background on prior findings of the National Credibility Index on race and ethnicity, Social Security reform and military force in foreign policy disputes.

The Public Relations Society of America Foundation is the national research and public initiatives arm of the Public Relations Society of America.

View Table: Credibility Ratings for Corporate Information Sources by Investors and Non-Investors