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Marie DeLauretis, financial planner, DeLauretis Wealth Management, Calgary Posting on social media requires courage because I don’t want to be on the receiving end of negative comments or be forced to defend my professional reputation, though most advisors are respectful of, and polite to, one another. I mostly post to my corporate Facebook account, calling attention to the need for insurance and a will, and to cash flow and estate planning. I ensure my posts are factually correct and that the information falls within my designations, licenses and regulation. My pol- itical posts, which reflect prudent financial planning, such as not spend- ing when you don’t have the money, tend to garner the most negative responses. I ignore these, because everyone is entitled to their opinions. Brian Shumak, financial planner, Brian Shumak Financial Services, Toronto I peruse articles and comments on LinkedIn, and post if I have something to add. For example, I’ve posted about saving at least 20% for a down payment on a home so that a client can make mortgage payments and still save for retirement and surprise expenses. I received unprofessional, negative comments for the post, mostly from mortgage brokers and real estate agents. Where my experience differs from that of commenters, I agree to disagree. Generally, I engage with commenters only for intellectual client conversations JOHN HOLCROFT / GETTY IMAGES debate, not to be argumentative. you have in common with the client. You’ve probably considered the similarities you share with clients and felt instinctively that common ground contributes to building trust. According to a paper published earlier this year by German academics Oscar Stolper, from the University of Marburg, and Andreas Walter, from the University of Giessen, the more demographic commonalities that exist between advisors and clients, the more likely a client is to follow advice. The researchers compared interactions between clients and advisors while meas- uring their similarities when it came to age, gender, marital status and parental status. They found the likelihood of clients following advice was significantly higher when clients and advisors shared more of those four demographic characteristics. “\\\[O\\\]ur results point to an impact of homo- phily — a powerful principle that governs who individuals regard to be their relevant others and those whose opinions they attend to — on clients’ decision as to whether or not to follow advisors’ recommendations,” the paper says. The researchers found differences between how men and women value these similarities. Men were likely to follow advice from male advisors of a similar age. For women, an advisor’s marital and parental status were more important. Those working in the financial sector fol- —Michelle Schriver Related biases Investors exhibit familiarity bias when they invest in companies with which they are familiar: employees may favour shares in their own companies and clients may prefer stocks lowed advice regardless of similarities shared with the advisor. “This result suggests that the homophily effect in financial advice is limited to settings in which there is a con- siderable knowledge gap between client and advisor when it comes to assessing the con- tent of the advice,” the paper says. That knowledge asymmetry exists in most advisor-client relationships. Not many clients are capable of, nor interested in, evaluating recommendations independently. Investment decisions are largely explained “by simple heuristics” based on interactions with advisors, the paper says. “\\\[D\\\]emographic characteristics appear to be particularly strong signals.” The homophily effect diminishes with time. The authors say that, for long-term clients, familiarity and experience at least partly offset the importance of demographic similarities. The paper puts the finding in the context of recent industry developments, such as regula- tions to ban conflicted advice and the growing popularity of robo-advisors. The value prop- osition of advisors has shifted from choosing products to communicating the benefits of their recommendations, the authors write. of well-known brands. A common outcome is home country bias, where portfolios are disproportionately weighted to listings in an investor’s country at the expense of global diversification. “Against this background, targeted client-advisor matching based on homophily can harness the effect that demographically closer individuals benefit from easier mutual understanding,” the paper says. “By the same token, individuals might perceive robo-advice as impersonal or inad- equately customized to their preferences, because they do not share any common char- acteristics with the computer algorithm.” This could mean clients are less likely to follow advice from robos — a potential selling point for advisors. It could also lead to more humanized forms of digital wealth manage- ment, the authors say, pointing to Deutsche Bank’s “Robin” robo-advisor, which follows the approach of humanized digital assistants like Apple’s Siri and Amazon’s Alexa. There’s a potential dark side. Clients who trust their advisors based on demographic similarities rather than on the advice they’re receiving or their portfolios’ performance could “aggravate” advisor misconduct, the paper says. The benefits of homophily, there- fore, depend on whether advisors act in their clients’ best interests. —Mark Burgess ADVISOR.CA 9