“Yes Men”

Typically we worry that financial advisors are getting us into investments from which they stand to profit.  And if they are paid on commission, they benefit no matter what they suggest or we decide.  But a new study suggests that they are biased in our favor – not necessarily to our advantage.

The study reported in Fortune showed that actors playing the part of investors seeking advice from financial planners, “walked out with advice that mimicked the biases in their original portfolio.”  Conservative investors, for example, comfortable with sitting on their cash, “were more likely to be told to take the cautious step of buying index funds.”

“The most telling result came from the actors loaded with company stock.  Just 40% of the planners told them to sell the stock and diversify their portfolio, even though the move would both be in the client’s best interest . . . and generate commissions for the planner.” (See, “The Yes-Man Problem.”)

Why?  The co-author of the study, Sendhil Mullainathan, a Harvard professor and recipient of a MacArthur “genius” grant, thought the answer was the overriding “need to get business in the door and have that client come back year after year.”  As a result, the planners avoided “the difficult conversations.”

No doubt that’s true.  Moreover, it’s also true that investors are likely to reject advice that’s different from what they themselves think.  As the article in Fortune went on to say, an earlier survey found that two-thirds of the people interested in meeting with a financial planner were likely to implement the advice “only if it conformed to their own ideas.”

Once again we see the inherent conservatism of the mind.  We don’t easily change our ideas, and we like people who agree with us – even when we know we might benefit from a new opinion.

This is particularly true when we are anxious.  Looking for a new restaurant or a different recipe, we are more likely to consider the advice we get.  But money makes most of us worried and tense.  We are keenly aware of the risk, fearful of making a mistake.  And since financial advisors know that too, a reliable way for them to build a relationship is to offer their clients a sense of security and comfort.

So it is up to us to get out of our comfort zones and ask for what we need, not what we want.  What we don’t know we know about ourselves is how hard it is to hear a different truth, even when it is in our own interest.