Why Expats Stick With IFA’s That Underperform and Rip Them Off
Albert Einstein once labelled the definition of insanity as "doing the same thing over and over again and expecting different results". But despite this well-known quote, expats still tend to stick to the same familiar ways of doing things, even if they aren't successful.
This applies to finances, too. Despite the plethora of options for expats in the offshore financial services market, they stick with their old financial advisors that simply aren't making them any money and rip them off.
Hereunder we take a look at why expats are reluctant to change their ways when it comes to handling their finances, and what this is costing them.
Why We Stick To What We Know
It is hardly uncommon for people to stick with something that isn't working for them - whether it is an unhealthy relationship, a job that makes us unhappy, or a financial advisor that isn't making us any money. But why do we do it? Well, there are three main psychological factors behind the tendency to "stick with what we know" - here's a quick summary of each one...
The confirmation bias is a cognitive bias that causes people to favour information that confirms their existing beliefs and ignore information that might disprove it. For example, if someone believes that their friend doesn't like them anymore, they are likely to notice and recall only the behaviours that support this, rather than any affectionate behaviours that suggest that they're still very much good friends.
Once we have developed a belief, it is almost impossible to change, even if the facts upon which that belief was established are proven entirely false. This is known as "myside bias". Similarly to confirmation bias, this cognitive bias causes us to hold strong on our opinions on people, things and ourselves, even if those opinions have absolutely nothing to substantiate them. It occurs when people evaluate, generate and test evidence in a way that is entirely biased towards their existing beliefs, leaning towards information that supports them and away from information that might prove them wrong.
Status Quo Bias
Change can be a scary thing for many people, which is perhaps why many tend to prefer that things simply stay the way they are (or "stick to the status quo"). In psychology, this is known as the "status quo bias", and is a type of cognitive bias through which people generally do anything they can to keep things the way they are. When changes do occur, people tend to perceive them as a loss or detriment, rather than an improvement, even if the change is obviously a positive one. This can make people incredibly resistant to change.
What This Costs You
When all these biases mix together in your mind, even the most financially savvy expat ends up losing money - whether that is by direct losses or by missing out on potential savings. What's more, the effects of cognitive bias worsen and become more difficult to avoid over time. So, for those who have opted for the same financial services for years on end, underperformance can begin to feel like the norm.
Imagine you have worked with the same financial advisor for years and years. You have a great relationship and your advisor knows you and your finances. Because you've built a rapport with him, you heard great things about him from others and he promised you a lot for your money at the beginning of your relationship, you have developed an understanding and an expectation that he is good for you, financially. If that advisor loses you money year on year, claiming that your losses were due to the economic climate, the volatility of the industries you invest in or some other bizarre excuse, all three biases would kick in.
- Confirmation bias would cause you to seek out only the information that supports your belief that your advisor is good for your wallet.
- Myside bias would cause you to discredit all information that suggests otherwise.
- And finally, status quo bias would lead you to think that changing advisors would be a risky and unnecessary move.
All the while, more of your money is being lost and potential earnings are passing you by.
In our experience, many expats begin to think of their advisors as friends, rather than someone they pay for a service. This leads to a situation where you feel uncomfortable approaching your financial advisor if you notice he isn't performing well.
At Expat Wealth At Work, we are on a mission to stop the unethical practice of advisors falsely "befriending" their clients. All whilst reducing the unnecessarily high fees charged for financial advice and providing access to state-of-the-art investment solutions. Our investment solutions use advanced technology to continually monitor performance and risk and quickly rebalance to reduce losses. This means we react to market changes in real-time - not on a set day of the week or month, and that what's best for you and your money is always our priority.
As the cost of living continues to rise, it has never been more important to avoid unnecessary spending and cut out losses. If you're currently managing your investments with a financial advisor, our solution is your ticket to doing exactly that.
When it comes to growing your wealth, taking the time to consider your options could prove to be incredibly valuable. Ask your advisor what he has done to your portfolio since the cost-of-living crisis began... if the answer is "we're sticking it out", it might be time to get out.