Advisors Have Biases Too, and That's a Marketing Opportunity
In the competitive field of managing other people’s money, leveraging behavioral science seems like an effective marketing strategy – good for the client, good for growing one’s business. But getting the messaging right is critical, and commonly promoted behavioral education may do little to improve outcomes for clients.
The potential benefits of effective behavioral marketing are worth the effort. Helping investors avoid poor decisions due to their emotions, which amounts to behavioral coaching, is a common reason why individuals hire financial advisors.[i] Further, behavioral coaching has the potential to improve client outcomes, which should raise client retention rates.
Appreciating skepticism
Daniel Kahneman, a pioneer in behavioral science, was famously skeptical of altering individual behavior, including his own, despite producing groundbreaking research on the topic.
“I’m just better at recognizing my mistakes after I make them,” he told Jason Zweig of the Wall Street Journal (read Zweig’s obituary of Kahneman).
Indeed, Macro Editorial reviewed research on the topic and found mixed evidence on whether raising awareness of common biases to help people avoid them is effective. In one study, participants were given hypothetical stock portfolios and informed of the disposition effect – the tendency, or disposition, to hold losers and sell winners – and its potential detrimental impact on returns. The educational intervention tended to immediately reduce the tendency to hold losing stocks for too long, and that improvement remained two weeks later, but the authors did not find a statistically significant impact at three months, indicating the reduction in the disposition effect had faded over time.[ii]
Yet while the long-term effectiveness of raising awareness is unclear, we have observed it employed by advisors and asset managers in their marketing. To be clear, we don’t see anything wrong with raising awareness as a first step. We advocate for more.
Leading by example
In our view, behavioral science can be used to attract and retain clients, and help them prosper. As a first step, we advocate for beginning with one’s own firm. Leading by example increases one’s credibility and humanity.
People have a natural tendency to recognize that biases exist but think they don’t have them. Several studies indicate financial advisors also suffer from behavioral biases in their practices; we are all human, after all. In reviewing the literature on this topic, one study stood out. A paper published by the National Bureau of Economic Research examined the decision of a prominent French brokerage and advisory firm.[iii] The firm’s digital platform, which both advisors and their high-net-worth clients could access, prominently displayed whether positions were in a paper gain or loss position with green/red color coding. In January 2018, the firm moved advisors to a new platform without the color coding, while clients remained on the existing platform.
Here’s the punchline: “the likelihood to realize gains rather than losses decreased to 20% after the intervention, compared to the 50% greater chance to sell gains over losses before 2018.” The authors note that a disposition effect of 50% had been previously demonstrated in another study of retail investors.
The authors further distilled the results to groups of clients depending on how much interaction advisors had with clients. They found that after the intervention “highly advised” clients experienced an increase of 20 basis points per month in raw portfolio returns compared to “lightly advised” clients, though they identify the raw gain as deriving from greater exposure to momentum strategies and reduced exposure to value stocks, and ultimately did not find a difference in risk-adjusted returns between groups. However, they noted evidence of increased satisfaction among highly advised clients, “reflected in significantly higher inflows into their portfolios and a lower likelihood of account liquidation.”
We recognize this is just one study, and creating a new digital platform is a big ask (and gain/loss displays have legitimate uses, such as for tax-loss harvesting). However, there are several practices that advisors, as well as investment firms, can implement, some with ease. For example, investment committees could practice anonymous voting and have the most senior people speak last in meetings to counter conformity bias. They could also assign someone to argue the contrary position, verbally or in writing, to address confirmation bias. The list goes on.
What investors value
How behavioral coaching is marketed to investors matters.
When both a group of advisors and investors completed an online survey about what is valuable about working with an advisor, investors ranked “helps me stay in control of my emotions” at the bottom, while advisors ranked it a little higher.[iv] Perhaps the statement was too broad, and people don’t like to be confronted with their own faults.
The online survey was redone with investor participants selected at random to receive different phrasing. Investors ranked higher, “Helps protect my portfolio from excessive emotional reactions (e.g., panic-selling during downturns).” Perhaps the statement rang true because it was more specific and focused on financial outcomes. In the original survey, investors identified as most valuable, “Helps me reach my financial goals.”
The evidence indicates to us that advisors can, and perhaps should, market their ability to coach people to specific outcomes, including helping them make informed and emotionally aware decisions to get where they want to go. Achieving one’s financial goals, which investors clearly value, likely means managing through biases.
We see a strong case for marketing behavioral coaching, and we encourage leading by example, focusing on specific goals, and partnering with clients over time on avoiding the pitfalls of common biases.
[i] Danielle Labotka, Samantha Lamas, “Why do people hire their financial advisors,” Morningstar, June 2023
[ii] Lingxi Huang, Benno Guenther, “Information and context matter: debiasing the disposition effect with lasting impact,” Frontiers in Behavioral Economics, April 2024
[iii] Marianne Andries, Maxime Bonelli, David Sraer, “Financial Advisors and Investors’ Bias,” National Bureau of Economic Research, August 2025
[iv] Ryan O. Murphy, Samantha Lamas, and Ray Sin, “Identifying What Investors Value in a Financial Adviser: Uncovering Opportunities and Pitfalls,” Journal of Financial Planning, July 2020
Disclosures
This article is for informational and educational purposes only and does not constitute investment, legal, tax, or financial advice, or a recommendation or solicitation to buy or sell any security or adopt any investment strategy. Macro Editorial is a content and communications firm. It is not a registered investment adviser, broker-dealer, or financial planner. Readers should consult a qualified professional before making any financial decision. Past performance is no guarantee of future results.
