The greatest trick bias ever pulled was convincing the world it didn’t exist.
Adviser Soze
Bias is a compliance hazard hiding in plain sight. It’s comfortable. It’s predictable. It’s also short-sighted.
Most advisers pride themselves on being rational, ethical and client-focused, but cognitive biases don’t announce themselves with any fanfare prior to their arrival. They whisper and nudge, eventually making shortcuts feel like good judgment, and familiarity feel like due diligence and best practice.
In the world of financial advice, box-ticking exercises are to be avoided. These practices are of little value to anyone (especially clients), and even the greenest pair of eyes will see through them quickly. Intentional or unintentional, most well-meaning advisers can fall prey to cognitive biases that quietly sabotage their judgment. Overconfidence, familiarity bias, and status quo bias are among the most prevalent, subtly shaping decisions that lead to everything from a coaching tip to a breach or banning.
How slip-ups occur
Overconfidence Bias
Advisers and AFSLs with years of experience may overestimate their ability to interpret regulations or assess client suitability. This bias often leads to shortcuts in documentation, assumptions about client understanding, or dismissing compliance checks as “bureaucratic fluff.”
They’ve always done it a certain way and never been caught; so why change? Like all snowballs, these practices can quickly grow beyond the adviser’s and AFSL’s control and cause a lot of damage very quickly, especially when some ‘moral slippage’ is thrown in.
Example
We recently reviewed a practice that had not had an external set of eyes examine the advice being produced by its advisers for a number of years.
Gaps in processes and advice were identified, and after some additional queries were made, it was found that the AFSL did not have adequate support measures in place for the advisers (nor were the advisers being adequately monitored). A ‘perfect storm’ if you will.
The left hand did not know what the right hand was doing, and the resulting advice was questionable at best. The AFSL’s view was that their representatives were competent and didn’t need handholding. It’s fantastic to see such a high level of confidence being placed in the AFSL’s representatives, but this has to be measured and applied with some semblance of control. Without support and monitoring, trust is unsubstantiated, and the overconfidence borders on recklessness.
Familiarity Bias
When advisers rely on familiar products, platforms, or processes, they may overlook emerging risks or regulatory changes. This bias can lead to outdated advice, missed disclosures, or failure to tailor recommendations to client needs.
The adviser carves some grooves for their cart in their advice map, and it’s a basic set-and-forget move. The advice process becomes more streamlined, and these missing corners get the advice out the door quicker. In isolation, the advice may appear mostly reasonable, but over multiple files, the pattern emerges very quickly.
Example
The same strategies and products are recommended (for most clients) after being compared to the same strategies and products each time (that are more expensive), regardless of the client’s circumstances and objectives.
It’s familiar. It’s easy. It’s lazy. Rather than conducting a reasonable investigation into potential products and assessing the information gathered each time, historical data and practices are relied upon.
This is certainly much quicker but seldom better. When conducting the investigation into products and assessing the information, they must be able to potentially meet the needs and objectives of the client(s). If the product considered isn’t potentially able to do this, it’s difficult to confirm its selection was based on the client’s relevant circumstances (which includes objectives).
It’s a prudent approach to have a ‘best of breed’, but this needs to be supported by research/data, be routinely (and frequently reviewed/updated) and be broad enough to be able to meet a range of clients’ objectives and needs.
This supporting information is vital. If we ask numerous advisers what the best/cheapest/most client-centric platform is, they all have a different answer. They can’t all be the best…
Status Quo Bias
“Well I’m bias, I’m bias, I’m bias, I’m bias, I’m bi-bi-bias, bi-bi-bi,
Status Quo “Bias all over the world”
Here we go-oh!
Bias all over the world.”
AFSLs may adopt (or heavily rely on) another AFSL’s compliance framework, resist updating their own compliance frameworks, or fail to challenge their own entrenched practices, simply because they believe they “work.”
This can result in inappropriate and ineffective compliance plans, poor record-keeping, and failure to adapt to new obligations. We’re not suggesting that the baby gets thrown out with the bathwater if an AFSL is born from the collapse or restructure of another. What we’re suggesting is that it may be appropriate to retain some aspects, but tailoring to the new structure, scale and representative network is vital. Some of the best art is stolen, but the new artist must personalise and make it their own.
ASIC has flagged responsible entities that have adopted master compliance plans from other AFSLs without tailoring them to their own operations. This shortcut may be driven by a number of factors, but has triggered investigations and warnings.
Example
Issues are created when:
Risk profiles are mismatched.
The adopted AFSL framework is designed for a different business model. For example, the previous AFSL was a large dealer group, and the new AFSL is a boutique, smaller firm.
Failure to update breach reporting processes.
Some AFSLs continued using outdated registers and escalation protocols adopted from other AFSLs, which resulted in under-reporting. Smaller firms (unlike the bigger dealer groups) can’t wait almost 2 years before reporting and finalising compensation for their clients.
Inadequate supervision of representatives.
ASIC found that some AFSLs lacked tailored monitoring systems. Instead, they relied on older review templates that did not take into account legal and regulatory changes, nor their actual advice process.
Breaking Bad: What can be done to break the cycle?
Aside from the recent fraud offences, ASIC have also banned advisers in the past for best interest failures (s961B) and inappropriate advice (s961G).
These are core obligations that can be easily undone by corners being cut. For example, the lack of alternatives or a recommendation based on assumptions rather than the client’s objectives and needs can quickly result in a failure of s961B and s961G.
“I’m most certainly not biased, but I’m incredibly good-looking and charming.”
Unknown
To mitigate the impact of bias-driven compliance failures, we must journey beyond technical training and embed behavioural safeguards into processes and culture.
Behavioural Training
- Use real-world case studies to highlight how biases manifest in compliance breaches.
- Role-play scenarios where advisers must identify and challenge their own assumptions.
- Incorporate behavioural finance modules into CPD programs.
Decision-Making Frameworks
- Implement structured compliance checklists that require justification for deviations.
- Use “pre-mortem” analysis: advisers imagine a future compliance failure and work backward to identify what went wrong.
- Encourage peer review of advice files to surface blind spots.
Behavioural Interventions
- Nudge advisers with prompts like “What would ASIC say?” or “Would this pass a client’s scrutiny?”
- Rotate compliance responsibilities to avoid habituation and freshen perspectives.
- Use dashboards to track behavioural metrics (e.g., frequency of exceptions, documentation gaps).
Adviser Self-Assessment Checklist: Spot Your Biases
Use these quick diagnostic questions to reflect:
- Do I skip steps, or make too many assumptions because “I know what I’m doing”?
- Are my files reflective of the steps I’m taking and the work I’m doing to build the advice?
- Do I default to the same products or strategies?
- Has my process and advice been reviewed by an independent party?
- Do I seek evidence that challenges my processes and advice?
- Do I rely heavily on past experiences and previous outcomes?
If you answered “yes” to two or more, it may be time to refresh practices and give the compliance lens a wipe.
Final Thoughts
Compliance isn’t just about rules or boxes to tick. It’s about self-awareness.
By recognising how cognitive biases can shape decisions, advisers can build a culture of vigilance, integrity, and client-first thinking by identifying and highlighting instances where they’re occurring.
In a regulatory landscape where ASIC is sharpening its focus on behavioural governance, the best defence is an active, reflective, bias-aware AFSL and adviser.
For support in developing your bias-aware systems, or to reach out about our workshops to help develop your skills, contact Assured Support today.
If you enjoyed this article, you might also like:
- The Laws of Compliance
- What Clients Really Think About Compliance – Insights from Complaints
- Financial Adviser Red Flags: Key Signs of Potential Misconduct
Frequently Asked Questions
Overconfidence bias occurs when advisers overestimate their expertise or judgment, leading to assumptions, shortcuts, and potentially reckless decisions. It undermines compliance by sidelining documentation and client engagement steps in favour of speed or habit.
Familiarity bias leads advisers to rely on known products or processes without reassessing their suitability. This can result in advice that appears reasonable on the surface but fails deeper scrutiny due to a lack of tailored investigation or current research.
Status quo bias causes AFSLs to resist updating compliance frameworks or copy models from other licensees without tailoring them. This can lead to ineffective governance, poor breach reporting, and regulatory breaches—particularly when the adopted model doesn’t match the business.
Advisers can utilise structured checklists, pre-mortem exercises, peer reviews, and reflective self-assessments to spot and challenge biases. Integrating behavioural training and nudges into daily routines strengthens sound, client-centred judgement.
ASIC is increasingly focused on behavioural governance and holds licensees accountable for poor advice stemming from cognitive biases. Failures to meet best interest duties (s961B) or provide appropriate advice (s961G) due to shortcuts or unchallenged assumptions can lead to enforcement action.
