Does Your Financial Advisor Have “Home Bias”?

Best fees.

Best banks.

Best investments.

Best coffee.

(Okay, I made that last one up. Everyone knows the best coffee is found in Vienna. ;-))

But believing that the US is the best system… full stop… causes no end of trouble for clients trying to objectively figure out whether moving some of their wealth offshore is prudent or not.

It happens so often that there’s actually a name for it – home bias – as first defined in a paper by economists Kenneth French and James Poterba in 1991.

In that context, they were trying to understand why investors kept so much of their portfolio at home when investment theory suggests that a balanced portfolio across jurisdictions would result in the best overall returns.

But what applies to investors applies just as much to their advisors as well.

I was recently reminded of this fact after an index fund manager tried to scare the bejeezus out of a client of ours who’s looking at opening a Swiss investment and bank account.

He went on and on how great the US was, how stable the banking system was, and how there was no risk in keeping all the assets with Uncle Sam.

But then he was asked questions about his knowledge of the Swiss system and it became obvious he didn’t have a clue.

He was simply the wrong guy to ask. Because he could only provide one perspective.

Now, please don’t get me wrong. I’m not saying that going offshore is always the right move. I’m also not saying that keeping some of your money in the US is always the wrong move.

Like many things in life, it’s a balance.

And it depends on what you’re trying to accomplish.

But when you hire an advisor, it’s important to become aware of where their expertise and experience lie… and the bias that results from having too little knowledge in one area.

It’s important you look at their advice through the lens of that bias. Because if you know where they’re coming from, you’ll be better placed to consider their opinion in the right context.

And with that, you’ll be better placed to make the decision that’s best for you, not for them.

The US market is amazing in many ways. But when a financial advisor lets their home bias get in the way of recognizing their client’s legitimate needs, it does those clients a great disservice.

If you’re looking for a different perspective – and are wondering if moving assets internationally will help you address it, feel free to get in touch.