Bias in action


Having just spent a bit of time setting out the relative aspects of bias that exist in the Financial Planning industry, i thought it relevant to highlight just how prevalent and deeply ingrained this tendency for bias is.

Please bear in mind that i am not making a value judgement here – bias will always exist and human nature is such that assuming that it can be completely erradicated is the equivalent of suggesting the entire human race can be directed to act in one particular way. Rather, i am seeking to illustrate just how difficult it is to understand the concepts of independence, bias and fees in a commercially operated world.

The Australian Stock Exchange (ASX) has signed an agreement to promote the interests of a group of financial planners, who operate under the banner of “AIOFP” (Association of Independently-Owned Financial Planners). Here is an announcement from the industry newsletter Money Management.

Here is an exercise for you… Look up the ASX website, navigate to the education centre and find the link that offers to help you find a financial planner. At the time of writing, you will see two highlighted links, with the AIOFP one granted the status of being the first (and therefore most likely to be ‘clicked’ link). If you follow that link you will see the website for AIOFP, which is a very good and information site, as a by-the-by (especially the information on how larger institutions have a very strong exposure to the financial planning industry in Australia here).

Again, working on this as an exercise in real world disclosure, try to find any information from either the ASX or from AIOFP that sets out the details of the commercial arrangements that have been agreed upon for this linking to occur. While granting that there may well be no financial interest at all, it does seem to be a long bow to draw, and so we would have to assume that there is some form of remuneration/benefit current or future that will flow between the ASX and AIOFP for the link.

The question you need to ask yourself is, ‘does the presence of a potential financial interest create a bias in regards to the referral from ASX to the AIOFP?’

You would have to ask the further question, ‘are the relevant financial planners going to have a bias for or against one type of investment over another as a result of this referral?’

Try to consider this simply as an exercise in assessing such issues. The choice of this particular link is for no reason other than it is current, and it reflects some of the issues raised (but not answered) in my previous post on the impacts of fund manager or platform rebates on recommendations or perceptions of bias.

The final questions we need to consider  are whether the presence of bias is always a bad thing, and if we accept that bias will always exist, how do we account for that when seeking or presenting financial advice?

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