Nearly half of all Australians have poor financial literacy and are turning to advisers for help with superannuation and investments, University of Sydney Business School’s Professor Susan Thorp says.
Many consumers believe the advice they receive is good, while “an objective evaluation of that advice found it not to be so”, Ms Thorp said.
During the study, participants watched videos showing advisers offering good and bad advice. The viewers were then asked to identify which advisers they would trust.
The research was intended to “unpack the process by which this trust relationship between the adviser and the client was formed”, Ms Thorp said.
“We found that people, on the whole, were able to tell the difference between good and bad advice on the topics that were relatively straightforward such as paying off credit card debts,” she added.
“But when it came to more complicated decisions, like superannuation investments, far fewer people were able to tell the difference between good and bad advice.”
The research found that advisers who made a good first impression were able to gain trust, despite offering bad advice.
“We were able to show that if an adviser gave good advice on an easy topic, that formed a good impression in the mind of the client and they continued to trust that adviser, even when they gave them bad advice down the track,” Ms Thorp said.
“It seems that this strategy is probably quite widely used and would be influencing people’s decision making.”
The study also found participants could not tell the difference between real and fake adviser qualifications.
Ms Thorp believes the research supports a need for higher qualifications and standards for financial advisers.
“A lot of people are aware of being modestly manipulated by an adviser,” she said, adding, “What’s important here is that the skill gap between the client and the adviser can be large. The potential for misunderstanding or manipulation is quite high in this situation.
"In other words, clients are vulnerable so they need to be properly protected.”