Advisor Authority

To Combat Investor Biases, Financial Advisors Should Consider Behavioral Financial Advice Solutions

As availability and confirmation biases impact decision making for affluent investors, advisors should consider technology tools and holistic planning to enable sustainable outcomes

A new report from Cerulli Associates provides insights into the behaviors, motivations, and decision criteria of investors across the full spectrum of age and wealth tiers. Access the complete report here.

May 23, 2024, BOSTON—Availability (88%) and confirmation (78%) are the most common biases among affluent investors. Given the vast range of potential biases one can have, advisors must consider integrating behavioral financial advice into their practice to better serve their clients, according to the latest Cerulli Edge—U.S. Retail Investor Edition.

While these biases tend to present more strongly than others for affluent investors, there tends to be a large amount of overlap. Among those investors who have strong levels of availability and confirmation bias, there also is a particularly large coincidence of both herding bias and anchoring bias.

Herding & Anchoring Bias

Herding bias—following the crowd or investing in popular trends—is almost a natural complement to availability bias, given that as a trend becomes more popular, it will attract more press and, as a result, it will be in front of more investors. This is especially pronounced for those with less than $250,000 in investable assets (16%), as these households tend to be younger and more prone to use social media that can amplify new trends.

Meanwhile, anchoring bias is a natural complement to confirmation bias because of how many people subconsciously use mental shortcuts to access and process information as quickly as possible. Having a specific reference point, such as remembering a stock’s initial purchase price or its 52-week high, can lead to processing information and making decisions with that reference point in mind.

“For both herding and anchoring, a trusted third party that has an overall view of financial markets can help pinpoint why a client has this particular anchor point and can work that into finding long-term solutions for their investing needs,” says John McKenna, analyst.

The Benefits Of Tech

Increasingly, technology providers have been helping advisors better understand their clients and help with gauging risk tolerances and financial priorities in the discovery phase. “With the help of technology, holistic financial planning can take the next step toward better client relationships that address clients’ conscious and subconscious feelings when it comes to money—an inherently emotional topic,” says McKenna. “While such tools do not dismiss or seek to cure behavioral biases, they may assist advisors in tailoring their advice toward respecting these biases and ensuring they can approach clients in a respectful, healthy manner while also creating a portfolio that is sustainable in the long term,” he concludes.




About Cerulli Associates
For over 30 years, Cerulli has provided global asset and wealth management firms with unmatched, actionable insights.
Headquartered in Boston, Cerulli Associates is an international research and consulting firm that provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments.


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