Science reveals the tricks financial planners can use to manipulate their clients

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Financial advisers have a bag of tricks they can deploy to get clients to do what they want, according to Australian research.

The study found many Australians can’t tell the difference between good and bad financial advice and don’t know about techniques used by advisers to manipulate decisions.

“Even before our research began, we were aware that many people who attend financial advisers view the advice that they are given as very good even when an objective evaluation of that advice found it not to be so,” says Susan Thorp at the University of Sydney’s Business School.

The financial planning profession, hit by a series of scandals, is in the middle of change in Australia with minimum education requirements and an independent body overseeing regulation coming in from next year. A financial planner register run by ASIC was created early in 2015.

The latest research focused on the process of forming trust between an adviser and a client.

Videos of advisers, some providing good and others providing bad financial advice, were then shown to groups of people who were asked to identify which 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,” says professor Thorp.

“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 found that trust is easily manipulated.

“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,” she says.

“It seems that this strategy is probably quite widely used and would be influencing people’s decision making.”

The research also measured the impact of showing an adviser’s qualifications.

“We found that displaying a qualification made people more willing to follow advice than they otherwise would be,” she says.

Professor Thorp believes that the research indicates a need for higher qualifications and standards for financial advisers.

The research, First Impressions Matter: An Experimental Investigation of Online Financial Advice, was published in the journal Management Science.

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