FP Canada research examines how a financial planner's own experience influences the recommendations they make for clients
Bias is often seen as a negative word, even though we all have biases based on our own experience. But is this a good thing for financial planners?
The FP Canada Research Foundation has been looking into the influence that bias has on the recommendations that financial planners make to their clients.
It found that advisors are more likely to suggest products – such as universal life insurance, mutual funds, annuities, segregated funds, and ETFs – if they own them personally or their spouse does, or if it’s a product that they are licensed to sell.
This is known as familiarity bias, where products are recommended because they are known to the financial planner even though they may not deliver the best outcome.
The study, conducted by HEC Montreal, also reveals that planners are more likely to recommend products that the client has asked about.
They may also factor in the gender of clients when this is not an important consideration. For example, planners are about 4% less likely to recommend mutual funds to female clients as compared to male clients.
Always bad?
However, the study doesn’t suggest that planners should be trying to eliminate bias and a recommendation influenced by bias may still be the best option in some cases.
"This research is a reminder that all individuals are prone to bias, even financial planners," says Joan Yudelson, Executive Director, FP Canada Research Foundation. "It's not necessarily a negative thing, but it does mean planners should remain vigilant. By being aware of potential biases, they can help ensure that the recommendations they're making are truly in their clients' best interests."
FP Canada Institute provides its Strategy Validation Tool allowing planners to test for biases quickly and easily. CFP® professionals and QAFP™ professionals can access this tool through their FP Canada portal.
