Technical approaches to financial education will not weed out “cognitive biases” that lead to poor advice, according to a professor of applied economics.
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.
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