“You bring the successes that built your confidence and the mistakes that you are careful not to repeat. And somewhere in your brain are the formal rules you remember, those you forgot, and those you learned that it is okay to ignore.”
Companies and regulators are rightly concerned about consistency. If what is deemed suitable for a client can differ depending not only on which adviser within a firm they speak to, but also on the prevailing mood of a particular adviser, then that company has a problem.
We do not want complete consistency regardless of circumstances. The aim is not to turn advisers into algorithms.
Humans are wonderful at many things, but they are inefficient and unreliable decision-makers, especially where many moving parts are involved, such as your typical individual investor’s financial circumstances. This is especially true in financial advice, which, when done well, is not a series of isolated events but an ongoing relationship.
What we want is greater consistency of process, such that the same inputs reliably lead to the same outputs.
Noisy by nature
Noise, by its nature, can come from more or less anywhere. It works in mysterious ways — that is what makes it noise and not bias.
Anything that can affect an adviser’s mood, from the weather to the time of their last meal, and a host of even-less-measurable factors in between, can influence their decision-making.
And then there is the modern home of “influence” — social media — and its expertly designed means of rattling old psychological cages in ever more instant, in-your-face ways.
This can affect advisers, should they feel they have to “compete” with the instantly gratifying gimmicks and dressed-up, day-trading returns. And it can affect individual investors, battling back a flood of fear of missing out and portfolio-image issues.
Confidently delivered promises of certainty are key to increasing influence, remotely or otherwise, but they are a red flag for trustworthy advice.
Social media should be irrelevant to advice. The clue is in the “social” part — good advice is inherently, inescapably, individual. There is no such thing as a “best” investment, just a best investment for an individual, given their unique recipe of financial circumstances and financial personality.
Ask any adviser if they are unduly influenced by social media and it is almost certain they will say no. Yet the same would be true if you asked them about other sources of influence too.
We know that noise in advice exists, even if we do not know the true extent of it. So what can we do about it?
