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Stonehage Fleming's Michael Maslinski and Andrew Nolan on the role and standing of experts in wealth management
15/05/2017 , Ian Orton

A by-product of the complexity of contemporary life coupled with the specialisation of function that typifies modern economies is that the role of “experts” has increased significantly. Indeed, there are now very few areas where “experts” do not have an impact.

Therein lies a paradox. The role of “experts” has increased. But their standing within society has diminished. Or as Michael Gove, a former British government minister, famously expressed it during the run-up to 2016’s Brexit referendum people “have had enough of experts”.

No one doubts the massive contributions that “experts” make to contemporary society. Unfortunately, however, we may have reached the point at which we rely too much on experts and too little on our own analysis, instincts and judgement.

Furthermore “experts” are not infallible. They often get things wrong. It could be argued, for example, that the events that culminated in 2008’s financial crisis were rooted in the prognostications, if not the actions, of “experts”.   

The wealth management sector has not escaped the influence of experts. And this inevitably raises questions about their role, especially when it comes to generating good results for clients.

It also raises questions about their standing if, as many commentators have argued, contemporary society is facing a trust deficit. The reality is that there are probably too many instances of specialists using their knowledge to deceive rather than enlighten their clients.

These and questions are raised in a new paper produced by Stonehage Fleming’s Michael Maslinski and Andrew Nolan called “The Role And Standing Of Experts In The Modern World”.

Given their background of working for a trust and fiduciary firm that also provides family office facilities their analysis has an implicit wealth management focus.

In essence this comes down to a reiteration of a familiar problem of how “generalists”, i.e. wealth managers, can best interact or employ specialists, i.e. “experts” to best advantage.

A first step is for generalists to understand the scope and limitations of “experts”.

“Whenever using experts, the client needs to understand to what extent the expert is bringing facts and analysis and to what extent opinion,” says Mr Maslinski and Mr Nolan. “It is only too easy to believe that the person with all the facts at their disposal also offers good judgement, but this is not necessarily the case, especially where their area of expertise is just one factor in a larger picture”.

A second step is for clients to challenge the advice received from experts to satisfy themselves that it is accurate, relevant, and based on a proper understanding of the problem.

Often this may require some understanding of the “expert’s” field of competence.

“This may necessitate one or more intermediaries as a bridge between the expert and he ultimate decision maker, but the more links in the chain, the greater the likelihood of a misunderstanding which may lead to the wrong decision,” warn Mr Maslinski and Mr Nolan.

Of course only the wealthy can afford intermediaries. For the less wealthy they have sometimes little option but to trust the advice they are given, whether they understand it or not. Regulation and increased transparency may help in respect. The reality is, however, that it is just as easy to hide the truth in too much information than too little if the client does not have the ability to challenge and interrogate.

A third step is to ensure that an “expert” understands his or her role and the context in which the advice is sought.

“The client must ensure the expert is properly briefed, genuinely understands the whole picture and has the ability to adapt his advice to a variety of different circumstances,” advise Mr Malinski and Mr Nolan. “This is particularly the case if the circumstances do not fit the profile of the expert’s normal clients and he has to step outside his usual approach.”

The recognition and negation of expert bias is a fourth step to increasing the likelihood of good outcomes.

The reality is that expertise can itself create bias in so far as “experts” will tend to look for solutions in the areas they know best. And this can make them oblivious to more relevant outcomes, especially if accepted or conventional wisdom is overtaken by changes in the outside world or unusual features of the particular case under consideration.

“What you need from these experts is information and analysis, but the judgements should probably be made by someone with a broader perspective, more removed from the market concerned,” aver Mr Maslinski and Mr Nolan.

Then there is the problem of resolving the often incomprehensible language and jargon often associated with “experts”. “Understanding the expert can become more valuable than the expertise itself,” assert the two Stonehage Fleming authors. They also point out that “we must remember that complexity, of itself, can be a substantial risk, and when it is combined with specialist jargon it can severely obstruct the decision maker’s ability to reach the right conclusions.”

Overcoming the tendency of many experts to be very cautious and data dependent is a sixth step to generating better outcomes. Much of experts’ knowledge is based on processes and historic factual data say Mr Maslinski and Mr Nolan. This may make them place too much emphasis on factors that are tangible and quantifiable as opposed to those which are not.

“It could be argued that it is up to the client to judge the unquantifiable and to decide what risks they are willing to take, but it can require courage to overturn a very negative expert opinion, which highlights long lists of all the things that could theoretically go wrong.”

The ability to manage a multiplicity of experts provides a seventh step to generating better outcomes. “With every additional expert comes additional risk that a failure of communication may cause a wrong decision,” note Mr Maslinski and Mr Nolan.

Furthermore too many experts can create bureaucratic processes which obstruct economic progress. “It may be that too much resource is allocated to paying for the experts and not enough to those responsible for managing their output and ensuring a successful outcome”.    

Of course the increasing use of technology and especially artificial intelligence is likely to have an impact on the relationship between generalist (client or wealth manager) and the specialist (“expert”) and their role and standing. “Experts” will more likely focus on adding value through judgement and experience rather than delivering information analysis or process.

Nonetheless, as Mr Maslinski and Mr Nolan acknowledge there is still much more to be done to restore the balance between “experts” and skilled generalists. Incentives may have to be changed as a consequence not least because specialist expertise is now so highly rewarded that it is difficult to develop career progressions that enable people to acquire the range of experience required.

Conversely more training is probably required to enable experts to understand and identify with the client perspective as well as enabling them to communicate their advice better.

Stonehage Fleming is currently attempting to address these and other issues through the use of “Key Advisers” who possess vast experience in many areas. But as the two authors admit training and developing these “Key Advisers” remains an ongoing challenge.  
 

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