FAE · ASIC Financial Adviser Exam

Adviser biases and professional judgement

The cognitive and emotional biases that affect advisers as well as clients, and why disclosure alone often fails to protect consumers.

Applied ethical and professional reasoning and communication1 min read3 sections

Checked against: Pompian (2012) Behavioral Finance and Investor Types; Kahneman (2012) Thinking, Fast and Slow; ASIC and Dutch AFM REP 632 Disclosure: Why it shouldn't be the default (Oct 2019); ASIC Financial adviser exam: Exam preparation guidance v6.0 (Sept 2026) and its reading list.. Independent prep, not endorsed by ASIC.

Must-know for the exam

Overconfidence: overestimating knowledge, ability or precision; linked to excessive trading.
Confirmation bias: seeking information that supports an existing view and discounting what contradicts it.
Anchoring: relying too heavily on an initial reference point such as a purchase price.
Availability: judging likelihood by how easily examples come to mind.
Framing: the same information presented differently leads to different choices.
Herding: following the crowd rather than one's own analysis; regret aversion can cause inaction.
REP 632 found disclosure and warnings can be ineffective and can even backfire.

On this page · 3 sections

Traps that cost marks

Anchoring is over-reliance on a starting value; the key here is filtering evidence to fit a prior view.
Loss aversion would make him reluctant to act; he is doing the opposite.
Using a benchmark is fine; failing to adjust it to the client is the bias.
Disclosure feels like a cure, but ASIC's research found it often fails to protect consumers.
Recency and availability overlap; the heuristic named for 'what comes to mind easily' is availability.
Framing is not dishonest in itself, but an adviser who exploits it can mislead.
A practice-wide consensus is not a reasonable investigation.
Picking last year's top performer looks objective but builds in recency bias.

Why it matters

Biases affect advisers too: anchoring to a previous recommendation, confirmation bias in fact-finding, and self-attribution after good markets. Good processes (checklists, file reviews, second opinions) reduce them.

Common traps

Trap: Anchoring is not about recent events; that is recency or availability.

Trap: Status quo bias is a preference for keeping things as they are.

Trap: Disclosing a conflict does not reliably make clients discount conflicted advice.

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