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The mission of our national parks and that of a financial advisor share some remarkable similarities. Our parks aim to conserve beautiful, sacred landscapes across our country for future generations, and to continue to grow those parks and the connection with their visitors. Advisors are entrusted to conserve and protect their clients’ livelihoods to ensure their financial futures, as well as grow those relationships with care and attention.
What do stunning natural landscapes like those of Bryce Canyon National Park and financial services professionals need protection from to achieve this mission of stewardship?
Ourselves.
We must go on the journey equipped with the tools needed to mitigate the harmful impact of our unconscious biases. Here are three lessons that our parks teach us about the cognitive biases advisors need to be aware of as the trusted protectors of their clients’ financial futures.
1. System justification bias
Americans have been told for decades that to solve plastic pollution we need to recycle and do our part as individuals. Therefore, I recycle, just like my neighbor, and feel justified in my contribution to the cause. But a whopping 91% of plastic is not recycled, and microplastics were found to be pervasive at all national park beaches. The idea of recycling was perpetuated by none other than one of the largest contributors to global plastic waste: massive food and beverage corporations. What is the disconnect? System justification bias, for one. We bolster and idealize the status quo, and subconsciously defend the desirability and legitimacy of our systems simply because they exist.
We are seeing this across the financial services industry as legacy systems are being challenged by the next wave of young, diverse financial professionals walking in the door, and promptly fainting with horror over the rampant use of clunky Excel spreadsheets and paper documentation. While the older generations of financial advisors have loads to teach the next generation, the defense of an outdated system that is causing delays in processes is not among them. Remember, the goal is to conserve the health and longevity of your client's finances for generations to come, not to make your fax machine feel young again.
This is not to say we should stop recycling. We need to dig deeper into our personal motives when it comes to systems like recycling that we interact with daily. Once we unearth the truth, we can roll up our sleeves, get creative, and invent the best solution possible with our client’s interests at heart. Only by challenging our biased assumption that a system is right just because of its existence do we allow for innovative and more suitable systems to take root and grow.
2. Subjective validation bias
We cherish beautiful parks like the Grand Canyon and hold them in our hearts and minds as pristine wilderness landscapes that encapsulate a more realistic picture of our country's geological and topographic past. It feels good to believe this, especially if we have spent time as children or as adults enjoying these gorgeous places. But a major increase in the volume of tourists visiting places like Zion National Park in Utah (if you’ve noticed the uptick in Instagram posts) means that these esteemed establishments are facing new challenges when it comes to infrastructure, policy, and management of the respectful conduct of millions of visitors. These places are still stunning and absolutely make for incredible vacation destinations, but to maintain them for generations we cannot romanticize them based on a past understanding when it comes to how we frame our future.
Advisors must be in tune with reality, both regarding their own business and services, and on behalf of their clients who may be affected by this bias when tackling important financial decisions. For example, when advisors are making business decisions for their firms, they shouldn’t base those upon sentimentality. Similarly, clients may have fond memories of the financial life they had prior to losing a job or another devastating change. As a fiduciary, advisors must help people through these events, which requires an ability to embrace the current reality. Leave your dreams of that wild blue yonder out of it when it comes to the long-term care of your clients and your firm.
3. The ostrich effect
While our beautiful parks are in need of conservation and protection, the National Parks Conservation Association does more than just work to protect the borders of their parks. Why? Well, because to do that would be to suffer from the ostrich effect. Inspired by the image of an ostrich with its head in the sand, this bias highlights our tendency to let our emotions drive the bus and ignore the facts when we find information unpleasant or damaging.
In finance, this bias was coined to describe a pattern of investor behavior where some of us were shown to be more willing to invest in an asset if the level of risk associated with it was unreported, as opposed to those with reported volatility.
Whether it’s stocks, ETFs, and crypto, or habitat loss and climate change, just because you cannot see the fully calculated risk, doesn’t mean it’s not there. We must fight our loss-averse nature as dopamine-loving human beings and be brave. Face the fear and confront the information head on, even when it’s scary. If you see potential risk in a decision that affects the sphere of your business’ influence or the stewardship of your clients’ financial futures, keep the sand out of your hair and attend to that problem directly and wholeheartedly.
To get clear on what the true best way forward is for a firm or a client’s future, financial professionals must prioritize objectivity regarding their own unconscious biases and beliefs. As the world evolves, advisors need to continually question the systems underlying “the way things have always been done” and challenge their sentimentality. They must do the same for their clients when it comes to investing decisions. Building awareness of these biases is the perfect first step.
Rick Williamson is director of training at Redtail Technology
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