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How advisers can avoid the appearance of bias

16 October 2018

Damian Ornani, chief executive officer of Fisher Investments, explains why bias is one of the biggest challenges advisers need to overcome when talking with clients.

By Damian Ornani,

Fisher Investments UK

Politics. I doubt I need to tell you, but it is ubiquitous. In America, politics divides along pro- and anti-Trump administration lines. On the continent, migration and populism dominate discourse, bringing fears of the euro’s stability along with them. And in Britain, most pundits see nearly every topic through a Brexit lens. Some go so far as to fret the Premier League’s ability to transfer players to and from the continent in a no-deal Brexit scenario! But it isn’t just football and politics. Investing and economics are increasingly politicised, too – to an even greater degree. This charged environment presents advisers with a problem: how to avoid the appearance of bias.

Ever since 2016’s Brexit vote, many in the pro-Remain camp have argued the vote to leave the EU risks recession. They speculated uncertainty over the trade relationship with the EU would crush real estate and business investment. That is a view dubbed “Project Fear” by those in favour of leaving the union, who argued these fears were overrated and the possibility of negotiating favourable deals outside the EU overlooked. They point to the lack of identifiable market and economic impact since the Brexit vote as sign the Remain camp’s warnings are off base. These divergent views cropped up anew after the IMF’s 17 September review of the UK economy. But they seemingly emerge with any government officials’ statements, economic data or earnings reports.

In America, one economic survey – The University of Michigan’s Survey of US Consumer Sentiment –illustrates economic partisanship well. On occasion – and rather regularly since mid-2016 – pollsters have asked consumers their party affiliation and categorised their views of current and expected economic conditions accordingly. Whilst the series is too short to draw many historical parallels, there is one very interesting phenomenon around the 2016 vote.

Prior to Trump’s victory that November, Democratic respondents were more optimistic about current and expected economic conditions than Republicans. Markedly so when it comes to expected conditions. In October 2016, the Index of Consumer Expectations for Democrats hit 95.4, topping Republicans’ by a whopping 34.3 points. When researchers next broke down party affiliation – in February 2017 – this radically reversed. Democrats’ expectations plunged to 55.5. Republicans’ surged to 120.1.

Of course, the US economy had grown for years before November 2016’s vote. GDP was at all-time highs. Equity markets, too. The only thing that had changed was the person – and party – in the White House. Michigan has asked this question in every month since. The gap is sticky. Politics are persistently skewing Americans’ views of the economic outlook. And, if so, it isn’t a stretch to think partisanship may skew their investment views as well, considering future economic conditions heavily influence markets’ direction.


So how does this impact financial advice? Simple: It is imperative to check your own political biases at the door when attempting to counsel clients. If you are perceived by a politically charged client as being “of the other camp,” they may reject your advice straight away. Be sure to clearly communicate to clients that your investment outlook and advice isn’t connected to any view of a politician or party. It’s ok and, in my view, necessary to analyse political developments like legislation. But you shouldn’t get sucked into assessing every possible wrinkle in the Trump/Russia investigation or Brexit negotiations.

Educate clients: No party is superior for equities. The US economy grew before and after Trump’s election. America’s S&P 500 index, in US dollars and not including dividends, annualised 13.8 per cent during Barack Obama’s eight years in office. In Trump’s roughly 19 months, it has annualised 15.6 per cent – quite similar. And whilst US shares have performed better historically during Democratic presidents’ tenures, this isn’t causal. It is largely a function of happenstance. UK market history similarly shows equities perform fine whether a Conservative or Labour prime minister inhabits 10 Downing Street.

If you can’t successfully shun bias, you risk driving a wedge between you and your clients. As political cartoonist Ted Rall wrote in an interesting op-ed in The Wall Street Journal, many people now live in isolated “news bubbles” that reinforce their pre-existing views and teach them to shun conflicting ones. Rall noted that many partisans may not even be aware of basic facts the other side is reporting, as news media, blogs and online resources emphasise differing stories and angles. He advised people to read news that challenges their biases. I agree! For advisers, this is key. You must make an effort to understand where clients are coming from so you don’t inadvertently anger them over something far removed from investing. Don’t auto-reinforce their bias, either! Aim to be above it.

Dispensing financial and investment advice is all about connecting with clients and explaining concepts in a manner they can understand and accept. This is always a challenge, as finance (like all industries) has its own language and can be complex. But with investing so politicised, today’s financial professionals face an even tougher task: Avoiding the appearance of bias so that clients don’t reject their counsel before they even give it.

Damian Ornani is chief executive officer of Fisher Investments. The views expressed above are his own and should not be taken as investment advice.

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