Although Jim Carrey was in a comedy with this title, the reference here is decidedly darker. A new study reported in Fortune and co-authored by Sendhil Mullainathan, a Harvard professor and MacArthur Foundation genius grant recipient, suggests that most financial advisors are enablers and tend to go along with their clients’ wishes, even when the clients are way off base.
Most planners, his report finds, reinforce our bad investment behaviors instead of fixing them.
The implication of the Mullainathan study is that advisors are incompetent or unethical, but I don’t think that’s the case at all. The problem is that advisors have learned through experience that investors won’t accept good advice-so they tell investors what they want to hear in order to keep the client. The problem is not an easy one to solve and here’s why:
Finally, the yes-man problem can’t just be pinned on advisers. A 2007 survey from the Employee Benefit Research Institute found that two-thirds of the people interested in meeting with a financial planner were likely to implement advice only if it conformed to their own ideas.
Investors are afflicted with an overconfidence bias-they think they know what they are doing-so they tend only to listen to advice they already agree with. The advisor is often put into the position of sussing out what the client’s biases are and then trying to approximate good advice, but only being able to go as far as the client will accept. No doubt this leads to a lot of advisor stress and investor underperformance.
We’ve always tried to be upfront with our opinions, even if the (often ill-informed) client doesn’t agree. Sometimes we get a frustrated client, but more often than not they rise to the occasion and listen. Smart clients are willing to question their assumptions, examine the relevant data, and consider a different point of view-and those are the clients we want anyway.
