For more on this and other useful insights you can use with clients, check out the latest issue of Current from the Nationwide Retirement Institute.
None of us wants to believe we possess biases, yet biases are a natural result of our lived experiences, our beliefs and values. Without reflection on this topic, we run the risk of inadvertently negatively impacting client relationships based on our biases, whatever those may be.
Acknowledgment: The first step toward change
The good news is that learning about our biases is the first step toward overcoming them. Cerulli (in partnership with Charles Schwab Investment Management Inc. and the Investments & Wealth Institute) conducted a study in 2019 to ask financial advisors to identify their biases. Paraphrasing from this study, key biases were identified when survey participants indicated that they “Agree” with the following statements:
I tend to feel worse about a loss than to feel good about a similar-sized gain (82%)
I think my investment management skills will result in clients outperforming the market (65%)
I rely on information which is readily available (58%)
I seek information that aligns with my perspective or current views (54%)
I allow personal experiences and/or current events to influence investment decisions (51%)
Owning our biases
Organizational and business coaching has strong similarities to behaviors associated with athletic coaching, and I offer an athletic analogy for this discussion of biases. If you have a bias, own it, and then decide if doing something about it works for you. Or if you choose to do nothing, consider what the consequences of inaction might be. Athletes identify what they need to work on and then create and follow a discipline to improve and make course corrections along the way. As financial professionals, you can use this same type of discipline to work on your biases by first identifying them and then finding strategies to help you overcome them.
Strategies to counter biases
Athletic coaches look for information in trends, statistics and history to support how they coach. As a financial professional, when you consider your client’s portfolio strategy, how often do you seek to find information which aligns with the investment management strategy you’ve executed for your client? When was the last time you intentionally sought to look for positions counter to your own thinking lens? Being open to new perspectives is one way to counter both availability and confirmation biases.
It’s worth repeating: Biases stem from our personal experiences. The more recent those experiences and the more social media stimulation you experience with current events, the more likely your actions are influenced, either positively or negatively, by these experiences.
This recency effect might be one of the most difficult to overcome because of the proliferation of information at our fingertips, coming at us through all types of media. It’s an understandable tendency to react to the latest news that supports your desired perspective (i.e., confirmation bias once again). Stock market trading is a good example of witnessing recency bias when we place more weight on the most recent positives vs. looking at a particular stock’s long-term history in the market.
Leading behavioral science expert Michael J. Mauboussin says, “Humans are natural pattern-seekers.” It’s why we believe when the market’s up, it will continue to go up, and when it’s down, we believe that will continue. But he also says that this overweighting of recent events is “one of the main reasons we fail to heed lessons from reversion to the mean.” Think about your past 30 days’ activity. Do you see evidence of the recency bias in how you’ve worked with any of your clients?
Lastly, the status quo bias speaks for itself. It could be easier to do nothing (loss aversion) when doing something different with the client’s portfolio might be a better alternative.
Failure to address any of these biases could have dire consequences for both you and your clients in terms of either financial losses and/ or the loss of client relationships. What’s one bias you are willing to acknowledge you own and, beginning tomorrow, you will commit to taking a first step toward eliminating from your financial practice?
David B. Peterson, Ph.D., a pioneer in the field of coaching who is Chief Catalyst and Transformation Officer at 7 Paths Forward, LLC, teaches coaches to employ the practice of “Action + Reflection = Learning.” Consider taking a week or two to keep a journal as you work with your clients and simply take notice of your actions. Quickly jotted bullet points are fine.
Once you have tracked your actions, the result will be your “learning” — from observed trends in your behaviors, any mistakes identified, or even just noticing what’s missing. Then have the courage to be vulnerable and admit to yourself, “I may not be as good as I think I am when it comes to my talents and abilities.” Commit to a cadence with this practice to protect your clients from biases that, with a bit of effort on your part, can be minimized or maybe even eliminated altogether.