Advisers use tricks to ‘manipulate clients’, claims research
A new university study suggests financial advisers are using techniques to manipulate vulnerable clients into making certain financial decisions, with one academic calling for tighter regulation.
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.”
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