According to the University of Sydney Business School’s Professor Susan Thorp, nearly half of all Australians have poor financial literacy and are turning to advisers for help with superannuation and investments.
Many consumers believe the advice they receive is good, while “an objective evaluation of that advice found it not to be so”, Professor Thorp said.
The research was intended to “unpack the process by which this trust relationship between the adviser and the client was formed”, she said.
During the study, participants were asked to view videos showing advisers offering good and bad advice. The viewers were then asked to identify which advisers they would trust.
“We found that people, on the whole, were able to tell the difference between good and bad advice on the topics that were relatively straightforward such as paying off credit card debts,” Professor Thorp said.
“But when it came to more complicated decisions, like superannuation investments, far fewer people were able to tell the difference between good and bad advice.”
The research also found that those advisers who made a good first impression were able to gain trust, despite their offering bad advice.
“We were able to show that if an adviser gave good advice on an easy topic, that formed a good impression in the mind of the client, and they continued to trust that adviser, even when they gave them bad advice down the track,” Professor Thorp said.
“It seems that this strategy is probably quite widely used and would be influencing people’s decision making.”
Further, the research found participants were unable to tell the difference between real and fake adviser qualifications.
Professor Thorp believes this research supports a need for higher qualifications and standards for financial advisers.
“A lot of people are aware of being modestly manipulated by an adviser,” she said. “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.”
Maybe it’s motivation, not manipulation. If the outcome is that the client spends less, saves more and is protected along the journey to achieving their goals, isn’t that what this is all about? Even Usain Bolt has a coach that uses techniques to keep him focused and on track, which is the same as what we do, get clients focused on their goals and keep them there despite the various hurdles that will get in their way and distract them from getting the outcomes they have articulated.
THE PROFESSOR IS RIGHT. He has confirmed that no matter how
smart people are they easily fall victim to perception. Irrespective of there
been thousands of outstanding financial advisers helping millions of people, the
perception is that we are all bad. I suspect this perception is not going to
change unless we remove the need for dealer groups in order to practice, knock
down vertical integration, become non-aligned to product manufacturers, dump
commissions/ percentage based fee income, build a strong all-inclusive
professional association, no grandfathering of advisers without degree qualifications
in financial planning, etc. I guess a tall order and probably one that would
make most of us uncomfortable. Cheers Ian Choudhury
Those who can’t, teach. Personally, I know of a few people (not just one) who’d like a refund on their Masters degree, because the employer demand promised by their reputable university did not exist once they were done.
That’s several years of lost time and tens of thousands in HECS debt.
Who is manipulating whom?
“In other words, clients are vulnerable so they need to be properly protected.†ahhh Best Interest Duty or should we add another 10 pages to our SoA’s? That will protect them…but wait they dont understand so best to just leave people as they are. My job is to manipulate people to help them achieve their own objectives and gladly I am guilty
For those interested in checking the professor’s quailifications this is her Link-ed In profile:
https://www.linkedin.com/in/su…
Car nut sounds like an ISA rep trying to take the focus away from us criticising the study and sidetrack the discussion off the most likely funding for the crusty old professor from the ISA/Labor/Union cohort.
To all Financial planners doing a good job for their customers. This is exactly how risk advisers are currently feeling with the LIF and false reporting by the FSC, ASIC and Trowbridge.
Car nut, take a pill, you are indeed rambling, it seems you are spouting rhetoric from your armchair. I’m sorry if I sound offensive but you are certainly offensive in your commentary with no substantiated facts to support your argument.
I agree Lincoln, especially when superannuation is “thrust” down everyone’s throat at all levels each day, financial literacy, while still occurring and does in fact need work from us as advisers to educate our clients, does need to be addressed to those who are not financially aware. They are the individuals who are taken advantage of.
Professor Thorpe is guilty of failing to disclose a MATERIAL conflict of interest!!! But that’s not as bad as rapport building, those nasty advisers! Fancy giving good advice and having clients then trust them. Shame shame.
Well lets also have an investigation as how the organisations (like uni) are there only to benefit members yet. 1. Constant claim dodging issues by the fund trustees forcing sick, injured or executors to court to get their entitlements 2. Are run by union hacks who avidly oppose independent boards – less jobs for the mates if you allow that. 3. Don’t fully disclose all their fees or always act with the correct fiduciary duty to all members. 4. Fund extravagantly expensive advertising campaigns to feather their own nests and sense of self importance with little tangible benefits to existing members who are FUNDING it. 5. Run misleading and deceptive accusations in the propaganda (let’s call it what it is) that ASIC forced them to change their advertising although this got surprisingly little publicity.
No Rick, your wrong. YOU do need to justify your business and extortionate fees. Maybe not to me but certainly to the public who are waking up to your offensive charges. I’ll stop rambling when you stop ripping off old people who needed advice once or twice & you saw fit to bill them a monthly fee for life.
A typical piece from academia who have yet to discover that nothing begins until somebody sells something..
Only stupid people take this seriously. Its a disgrace to academia. It turns out the ‘trick’ in the headline is to give good advice on an easy topic. That builds trust, you see. Isn’t that wicked? The Professor-paid-by-an-industry-funds wants people to believe that even when good advice is offered bad advice is coming next. “Objective evaluation of that advice” comes from the Professor-paid-by-an-industry-funds? Or from a different human with a different axe to grind? In this industry everyone talks through their pocket. The Labor party wins because it has the deepest pockets – the taxpayer’s.
Haha, no shock there.
Perhaps Uni Super should focus on having sufficient funds within their defined benefit funds to actually pay all the promised benefits to members?
For those wondering, Professor Thorp’s website shows her current research program is sponsored by Unisuper Limited – http://sydney.edu.au/business/…
For her next project, I wonder if Professor Thorp could inject some balance into her body of work by investigating the quality (or lack thereof) of advice provided by vertically integrated super fund product providers, who hide behind ‘intra-fund advice’ legislation to deliver advice which excludes key consumer protections?
What was the criteria to determine whether the advice was good or bad ? Research can be manipulated to provide whatever outcome the researcher wants. It is disappointing that this article was published without any detail on the content. Where are the professional standards in journalism ? research ?
Car nut why would anyone bother attempting to ‘justify’ their business model to someone like you? Assuming you have a job, I’d love to visit your workplace and ask you to justify your pay-check – who made you judge and jury anyway? Your rambling comments were needlessly offensive, poorly constructed and grossly inaccurate – so next time, get your facts straight and then we might actually care what you think.
OMG where did this academic come from. Is she the Uni of Syd Business schools version of Rip Van Winkle. The process of building trust is an essential component in any relationship. So advisers build trust to manipulate clients ? Of course they do (sic) . Avisers don’t build trust to manipulate clients, they build trust to ensure clients who don’t know what to do and don’t know how to do it but need to do it, have the faith in a human being to help them get to where they need to go.
Get off the adviser bashing bandwagon and into the real world. There are rotten apples in all disciplines including academia but don’t judge all advisers by a few advisers bad practices.
The “Staff Reporter” who has submitted this article and utilised the word “tricks” in the headline is irresponsible.
Nowhere within the text of this article is the word “tricks” repeated, referred to or in fact quoted by Professor Thorp.
This staff reporter has utilised a journalistic “trick” by using a sensationalist tag word in the headline to grab the readers attention, even though it is entirely misleading and designed to paint a picture that advisers deliberately manipulate the client relationship and decision making process through the establishment of a level of trust.
It is of course paramount the advisers communication skills and explanation of more complex matters and strategy is applicable and relevant to the clients level of sophistication and understanding of concepts and has to be tailored to each and every client to ensure confidence in their decision.
But to insinuate that adviser’s use “tricks” to gain a client’s trust and then off the back of that trust deliberately manipulate the situation and intimate that this is “widely used” is appalling.
No-one will ever work with, seek advice from or generally buy something from someone they do not have an element of trust or commonality of understanding with first.
Perhaps Professor Thorp is really pushing for the robo-advice model where the communication style, personality, body language, tonality and basic human traits can be totally ignored as an issue of undue influence and the relationship can be between the client and computer generated planning software.
Carnut, you really need to learn something about people and common sense. Whilst I would never condone overcharging a client your argument is flawed in the extreme.
Please tell me why you would not spend $4,000 to get $10,000. If you are still struggling with the concept, then here’s my offer to you, if you give me $10,000, I’ll happily give you $4,000 for doing so.
We do not set the compliance environment. This was thrust on us by the primarily self-interested Labor Government to appease their supporters from the IFA. Get your facts right before you criticise us for charging for advice. We have had to obtain and maintain educational qualifications to provide advice which is not cheap. We also have to have access to the required tools and information to keep out clients informed. If we do not give advice as laid down by the regulations then we are fined by ASIC. You don’t know what you are talking about.
What an absolute circus the FP industry has become. There are many advisors who charge way too much for simple advice. The industry needs to fight back & eliminate this ridiculous compliance burden that everyone continues to pay the price of. Compliance is ruining the industry & FP fees need to drastically come down. Just because you might save a client $10,000 a year from a text book simple strategy like a TTR for example does not give planners the green light to sting them $4000 up front & thousands a year. THIS needs to stop and you all do it, don’t try and justify it either. FP’s will always be untrusted & viewed as thieving opportunist because of these ludicrous upfront & service fees. Compliance, it’s costing you everything & needs to be tackled & addressed urgently.
The only evidence of manipulation here, is an academic using theoretical research to support outrageous claims with no empirical evidence to support her statements. If this is the quality of research produced by the University of Sydney’s Business School, it is a very poor reflection on that institution.
My parents were both highly qualified, intelligent and respected teachers, and refer many of their friends to me. Teachers and academics are some of the most financially uninformed of my client base when it comes to what is good and bad advice. They also have some of the worst structures and strategies I have seen. They swap “advice” in the lunch room, and hearsay and rumours are their guides.
There are good and bad in every profession (including academics), to say “it seems that strategy is quite widely used” is a ridiculous, unfounded, unjustifiable statement. ifa magazine, why would you publish this rubbish?
I have two questions
Was this research funded by industry funds, because the process appears to be designed to attack competing advisers in the super environment
What exactly is “good advice “, and in whose terms
As to research, It is now quite common for outside bodies to “sponsor ” Uni research to get a so called independent finding. The most regrettable in recent years is the funding of Monash Uni Road Accident Unit’s research. Historically, this has been done by the state RTAs to justify revenue raising on a massive scale with speeding fines. Unis do not have the resources normally to undertake this type of esoterical research.
I see and smell a rat ! Please IFA ring the Professor and ask the funding question
Perhaps the Professor was so absorbed in their study that they hadn’t noticed the passing of the Best Interest Legislation? We should actually be asking why so many are so financially illiterate, especially now that superannuation isn’t a new thing but been around at least a generation. The blame for this lies squarely at the feet of our educators.
I completely agree with the professor the dirty tricks (or otherwise known as rapport building) are employed by all professions (accountant, solicitor) that provide advice. In fact some professions don’t even need to open their mouth provided they have a white coat (doctor, pharmacist). Perhaps we should have legislation that bans rapport building.
Which planet has she been on for the past three years? Is she not aware of the new education standards which are to be implemented? How much more regulation do we need in our profession? What are her qualifications for presenting these research findings and who did she actually interview or survey to come up with these nebulous results. This sounds like it was done at the request of ISA to further denigrate Financial Planners. Anything which comes from an obviously left-wing academic should be filed in the round file cabinet or sent to shredder heaven. What a waste of time and no doubt tax payer funds as she would have had a research grant to undertake this.
what a crap article. Where is the proof of the claimed outcome that “probably”advisers are manipulating the client and how is a higher education std and qualification going to change behaviour? It sounds very much like the same flawed arguments being used in LIF debate when there was a blinkered approach. Regulations do not change ethics. This shows that what you see in print is not always reality….and should probably have not been published.
While in no way trying to cast negative opinion of Professor Thorpe, in my opinion this research is skewed, if possible I would like to have access to the report, my email is stephen@stephencatterall.net.
Any clients/participants can be manipulated in a research study in exactly the same way by the influence of the initiator. What were the numbers involved and the control measures, how was the study initiated and carried through, what was the process?
I find this whole article really offensive. The study deals with video scenarios and based on that all advisers must be using these tricks??? Another academic exercise far removed from real life. Spend time with advisers to make a fair assessment of what goes on and the IFA should be ashamed for supporting this dribble by publishing the story.
I’m sorry, I must be fairly dense in my understanding of the above.
Researcher uses actors to provide advice to prove his hypothesis, and then declares with zero analysis of the actual market that real life advisers are probably quite widely using his strategy.
My own research suggests that, widely, all researchers need further education on the scientific method.
Borderline pathetic this – there is also good and bad research in terms of quality and content. This is close to the bottom of the barrel in terms of meaningfulness and constructive commentary.
And pray tell, what is Prof Thorp’s experience and qualifications in passing judgment on ‘good’ or ‘bad ‘ advice?