Wealthy investors are most likely to prefer having older white males as their financial advisors. That’s according to a study done by Spectrem Group, a researcher focused on the investment industry.
The study asked affluent investors to look at the photograph below and make a snap judgment about which of the eight financial advisors they’d prefer. The number one pick overall was the older white male (#1). A close second was often the middle aged white male (#3).
We are talking about snap judgments here, but snap judgments are a big part of how we live. Whether we’re choosing an investment advisor, a stranger to sit next to on the train, or a supermarket cashier to line up for, first impressions are powerful.
The Spectrem report cited a Princeton study by Alexander Todorov and Janine Willis that found we judge character and competence within a tenth of a second of seeing a face -- before a single word gets exchanged. What’s more, those impressions are pretty hard-wired. Our initial impressions don’t change easily even after we’re given more time and information.
Is any of this rational? Of course not. There is no good reason that we should associate trust and investment wisdom with older white males more than we do with other groups. And yet, one surprise from the study is that women as well as African-American, Asian, and Hispanic respondents also are more likely to favor the older white male as a financial advisor. That means the bias is widespread.
Seasoned portfolio managers know that the way individuals choose financial advisors is highly idiosyncratic. The first thing people say they look for in a financial advisor is honesty and trust. Then they look at investment record and fees. But overarching all that is some complicated calculus on likeability and how an advisor makes you feel. Snap judgment is involved.
That’s why we portfolio managers have gotten used to hearing from the experts that potential clients make decisions about us within the first few seconds of meeting. (That also means, sadly for us, that those Powerpoint slides on investment strategy that we craft with such care may actually matter little.)
You would never go to a financial advisor you don’t like or one with whom you’re uncomfortable. That would be silly. But to put some backbone behind how you feel about an advisor, there are ways to be more deliberate in your decision-making.
First, just being aware of potential biases will help. Next, so will being clear about what you want. You should know what you’re looking for in terms of investment results, planning, service, and communication style. What are the three or four most important things to you where advice could make a visible difference? Write them down. And also prepare a list of questions that you ask of all potential advisors. People naturally ask about fees and track record. What they often don’t ask about but should is investment process and making sure there’s a rationale for every financial decision made on their behalf. There also should be some hard questions on potential conflicts of interest and how they would be handled.
Finally, it can be illuminating to listen to advisors you disagree with or who seem to have it all wrong. As Charlie Munger says, you’re really only entitled to have an opinion when you know the other side’s argument better than they do.