Education is often a flawed solution to problems of “financial adviser greed”, Queensland University of Technology professor Uwe Dulleck has argued in an article published by blog site The Conversation.
Drawing on experiments conducted in 2011, Professor Dulleck explains that advisers – as human beings – are susceptible to “cognitive biases” and incentives that may drive their decision-making process.
“Even the most experienced financial advisers will be subject to biases in their decisions and the advice they provide to a client, even if they have only the best interests of a client at heart,” he wrote.
However, despite some views to the contrary, Professor Dulleck contends that the ability of education to stamp out these deeply ingrained cognitive biases is highly questionable.
“Can education help in this case? Yes it can, but given that financial products are complex by nature and learning is slow, given that there is no quick feedback, “technical” education is not the answer,” the article states.
“Instead, education should raise awareness to biases and provide advisers with strategies to overcome them.”
Behavioural science suggests that technical information will often simply be used to confirm a predisposition, the article continued.
Professor Dulleck said the onus to reduce conflicted behaviour is instead on “organisations employing advisers”.
“As [Nobel Prize-winning economist and psychologist Daniel Kahneman] points out, organisations have the potential to establish quicker feedback loops, as it’s much easier to see the mistake a colleague makes than to see your own mistake,” the article states.
“This channel to avoid weak financial advice is one that tends to be overlooked in the current debate.”
The comments come as a number of advisers have written to a PJC inquiry to reject emphases on technical education.
Professional development is a personal initiative based on self motivation. If the personal motivation does not exist it is impossible to manage for professional behaviour. This is reflected in the much publicised Organisational Failures in Financial Planning. The premise of Dulleck’s research is flawed. It should start with the individual not the organisation and research qualities of the individual that indicate motivation for professional behaviour ( eg work ethic, responsibility, empathy etc ). Further, it is individuals that have a proven track record in professional behaviour that should be leading this debate not organisations.
As I read the article in The Conversation I could not help but come to the conclusion that Professor Dulleck did not seem to realise that commissions for financial planners on investments and superannuation no longer exist. They were outlawed as of 1 July 2013. To the extent that the research was based on the bias created by commissions it is now out of date.
I think Kohlberg and Piaget would disagree that cognitive biases cannot be changed through education. “Piaget and Kohlberg demonstrated that moral development is a learning process and can therefore be both taught and learnt (Ref. CFP1 FPA Professionalism, p.1.12). Ethics are complex rules and vary across cultures, and therefore need to be taught as part of professional development. I highly recommend the CFP1 education program from the FPA. It ties together legal and professional responsibilities into one great reference book. Enrol today.