The Shibboleth Bias: Mistaking Complexity for Competence in Financial Planning
Retirees and pre-retirees face numerous issues in financial planning. One particular pervasive problem lies in choosing the right financial planner, where it's easy to mistake complexity for competence. The shoptalk often used by the financial industry to “explain” investment strategies can make financial planners seem smart and retirees feel inadequate.
It's just financial jargon masquerading as wisdom.
Financial planning is only as good as the client’s understanding of the plan. Financial planning should help people make better decisions, and sound decisions require understanding and detailed information. Yet many clients leave meetings with their financial advisors feeling confused rather than confident. This is where the Shibboleth Bias comes in.
What is the Shibboleth Bias?
Historically, "Shibboleth" was a Hebrew word used to distinguish insiders from outsiders. It actually comes from a story in the Old Testament (Judges 12:5-6) where Gileadites used it to identify the Ephraimites who couldn't pronounce the “sh” sound. Essentially, it was a password to distinguish ally from enemy.
Say it properly and live; mispronounce it and be executed.*
*I have no idea how many tries one got, but hopefully several!
Today, the Shibboleth bias describes our tendency to equate specialized vocabulary, technical language, or insider terminology with competency and authority. “In the know” vs. the outsider.
The Value of Simple Language in Financial Planning
Often we assume people who sound sophisticated know what they're talking about.
Sometimes they do. Sometimes they do not. If a financial advisor cannot explain an idea in plain language, they either don’t understand it well themselves or they are relying on complexity to establish or maintain their credibility.
Good financial advisors translate sophisticated terminology into more familiar language. The BEST advisors simplify the jargon without the client feeling as though they are being talked down to.
Potential Costs of the Shibboleth Bias for Retirees
Letting the Shibboleth Bias inform your choice of a financial advisor can present risks that leave you unable to understand your own finances:
You may choose an advisor based on how impressive they sound rather than the merit of their work.
You may purchase financial planning products without a full understanding of the cost/benefit ratio.
You may end up accepting complicated strategies over simple, yet prudent, investments.
You may mistake activity for progress.
You may have feelings of intimidation that lead you to avoid asking pertinent questions.
Remember: Good financial advisors translate. Great financial advisors educate.
How to Ensure Clarity When Receiving Financial Advice
Great financial advisors don't impress clients with complexity. They empower clients with clarity.
Clarity is a fiduciary virtue, and sound financial planning focuses on helping people steward their resources wisely to accomplish their goals. The next time you receive financial advice, consider asking these questions to ensure clarity:
Can you explain this in simpler terms?
Why is this recommendation appropriate for me in my current situation?
What are the trade-offs? What are the costs or risks?
How does this support my long-term goals?
Financial Advice That You Can Understand
The financial advisor's objective shouldn't be to sound smart, but rather to ensure you have the information necessary to make an informed decision! What you need is a Champion in your corner - someone who not only understands your finances, but seeks to help you understand and make informed decisions about your future. If this resonates with you and you're looking for a financial planner in Northwest Washington (or virtually anywhere), schedule your free consultation with me today!
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