Abstract:
Various studies have examined investor behavioral biases and the perceived value financial advisors provide to their clients. However, the academic literature examining behavioral biases among financial experts is scarce. This qualitative study focused on understanding what behavioral biases affect the portfolio manager and financial advisor decision process. The results of this study indicated that advisors are not immune to many of the same behavioral biases found in individual investors. The dominant biases found in this study supported past empirical findings on expert biases. Participants’ responses from this research indicated that advisors’ conformity and experiences led to advisor herding and overconfident behaviors. Data-driven results showed that advisor conformity could manifest into a moderate-risk bias. Moderate-risk bias is the advisor’s tendency to classify investment allocation and client risk tolerance to a moderate-risk level. Another key finding was that advisor behavioral bias awareness aided the advisor’s financial decision making process. The more advisors were aware of biases the more they could clearly articulate that bias to clients. Advisors’ responses during interviews indicated that if they could effectively communicate and discuss that behavior with clients, they could adopt practical strategies to suppress behavioral biases and avoid predictable cognitive errors. Early adoption of bias suppression could have practical implications in understanding and explaining advisor value to clients.
