The West Australian, 19.9.16, by Susan Thorp:
A big number of Australians are unable to tell the difference between good and bad financial advice and are unaware of techniques used by advisers to manipulate critical financial decisions, according to a major university study.
Almost half of all Australians suffer from poor levels of financial literacy and many turn to financial advisers for help with decisions on things such as superannuation investments.
Even before our research started, we were aware that many people who attend financial advisers view the advice they are given as very good even when an objective evaluation of that advice found it not to be so.
Puzzled by this, we set out to unpack the process by which the trust relationship between the adviser and the client was formed.
We produced videos of a number of advisers, some providing good and others providing bad financial advice. The videos were then shown to groups of people who were asked to identify which of the advisers they would trust.
We found that people, on the whole, were able to tell the difference between good and bad advice on topics that were relatively straightforward such as paying off credit card debts.
But when it came to more complicated decisions such as superannuation investments, far fewer people were able to tell the difference between good and bad advice.
We were able to show that if an adviser gave good advice on an easy topic, it formed a good impression hi the mind of the client and they continued to trust that adviser, even when they later gave them bad advice.
It seems this strategy is widely used. and would be influencing people’s decision-making.
The research also measured the impact of showing clients an advisor’s qualifications.
One of the things we were able to do in this experimental context was measure the impact of a certification. We found that displaying a quaufication made people more willing to follow advice than they otherwise would be.
Clients were often unable to tell the difference between genuine and fake qualifications.
A lot of people are aware of being modestly manipulated by an adviser. What’s important here is that the skill gap between the client and the adviser can be large.
The potential for misunderstanding or manipulation is quite high in this situation. In other words, clients are vulnerable so they need to be properly protected.
Other academics involved in the project included Professor Julie Agnew, of the College of William and Mary, Virginia, US; UNSW’s Professor Hazel Bateman; Dr Christine Eckert, of the UTS Business School; the ANU’s Dr Fedor Iskhakov and Professor Jordan Louviere, of the University of South Australia.
Susan Thorp is a professor at University of Sydney Business School