STANDUP to the Financial Services Industry by John De Goey

Author:John De Goey
Language: eng
Format: epub
ISBN: 9781989025871
Publisher: John De Goey
Published: 2019-03-24T16:00:00+00:00

Ironically, advisors also tend to accidentally lose their independence when they congregate at conferences and continuing education sessions. When a large group of “independent” people gathers to discuss how things work, and when those discussions are based on unproven and unfounded industry presuppositions, what results is often not what might be the opposite of truly independent thought.

Instead, it is something more akin to industry-wide groupthink. In 1973, Yale psychologist Irving Janis published an essay explaining how a group of intelligent people working together can sometimes arrive at the worst possible answer. His research changed the way the world thinks about decision-making. It might be seen as a sort of self-fulfilling prophecy based on decisions made while applying group dynamics.

Janis showed that people in groups often developed a “pattern of concurrence-seeking... when a ‘we-feeling’ of solidarity is running high.” The more people are beholden to the perceived interests of the overall team, the more they might be inclined to turn off that part of their brain that engages in critical thought.

It seems we need to teach advisors about critical thinking. My experience is that very few financial advisors engage in it. Instead, they buy into whatever presumptive pitches they get—whether those pitches are internal (i.e., from management) or external (i.e., from product suppliers). Either way, they need to be able to filter out evidence, weigh it and offer balanced, reasoned and objective advice to their clients, whose best interests should always be paramount.

The word “presumptive” is critical. Currently, many advisors and clients presume that high product cost is immaterial. Similarly, some advisors claim that the availability of embedded compensation is immaterial. In contrast, most clients don’t understand how or how much advisors are paid. Almost every week, I have product suppliers calling me to pitch their product that has “top quartile performance” or some such thing. If advisors understood that that line of thinking was misguided, they’d tell the callers to go to hell. Product suppliers keep calling because advisors obviously believe their rationale has merit.

Janis’s participants adhered to group norms and pressures by moving toward uniformity, even when their policy was working badly and had unintended consequences that disturbed the conscience of the members. He was famous for saying that “members consider loyalty to the group the highest form of morality.” Professors at business schools might call that “building a corporate culture.” Cynics might call it “creating a cult.”

Participants in those critical decisions, Janis found, had failed to consider the full range of alternatives or consult experts who could offer different perspectives. They rejected outside information and opinion unless it supported their preferred policy. And the harsher the preferred policy (in other words, the more likely it was to involve moral dilemma), the more eagerly members clung to the consensus.

Janis suggested several steps for preventing groupthink. These included careful impartiality on the part of the leader as to what decision the group should make; formation of competing teams to study the same problem; and giving “high priority to airing objections and doubts.

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