In the world of financial advice, there’s a fundamental flaw—one that’s been hidden behind tick-box compliance and industry-approved psychometric tests. The issue? Most financial advice isn’t based on what’s truly in your best interest. Instead, it reflects a version of you that has been shaped by years of parental conditioning, cultural beliefs, and psychological misconceptions—your false self.
False Self vs. True Self in Financial Planning
Human psychology recognises two versions of the self: the false self, formed by external conditioning and limited beliefs, and the true self, discovered through introspection and alignment with universal truths like personal values. Behavioural psychology, as applied in financial planning, focuses almost entirely on the false self—measuring how you think you feel about risk rather than what’s actually right for your financial future.
This is where many financial tools, such as Attitude to Risk (ATR) questionnaires, miss the mark. These tests don’t assess what will genuinely serve your lifelong financial needs. Instead, they create a profile based on your preconditioned fears, emotional biases, and misconceptions—often leading to investment decisions that match those misconceptions rather than optimising for your real-life financial liabilities and goals.
The Problem With ‘Suitable’ Advice
A financial adviser using these psychological models will design a portfolio that aligns with your false self. The result?
- The client feels reassured because the portfolio ‘feels’ right, even if it’s suboptimal.
- The adviser secures a sale and gets paid.
- The compliance department ticks a box.
But what happens in the long run? Many investors unknowingly lock themselves into underperforming, low-volatility portfolios that are marketed as ‘safe’—when, in reality, these investments carry a high risk of shortfall over a lifetime. The outcome? You spend years longer working than necessary, all because your investments weren’t optimised for your true needs.
Comfortable Lies vs. Uncomfortable Truths
Rather than challenging the myths surrounding investment risk, many advisers take the easy route—telling clients what they want to hear instead of what they need to know. For example:
- Myth: Low-volatility investments are ‘safe.’
- Truth: Low-volatility investments come with hidden risks—such as higher exposure to inflation, interest rate fluctuations, and shortfall risk over the long term.
Conversely:
- Myth: High-volatility investments are ‘risky.’
- Truth: Over the long term, high-volatility investments actually reduce the risk of falling short of financial goals. They are less affected by inflation, interest rates, and currency fluctuations, and they often carry lower default risk.
A Better Way: Education and Empowerment
Instead of using psychological tools to reinforce misconceptions, why not take a different approach? The role of financial advisers should be to educate, empower, and guide clients towards decisions that serve their best interests—not just those that feel comfortable in the short term.
Dynamic Planner’s recent launch of Financial Personality Insights is a step in the right direction, aiming to deepen client understanding of risk and behaviour. However, even with such tools, the core issue remains: Are we using psychology to inform and educate—or simply to validate the status quo?
Real financial empowerment means moving beyond outdated risk-profiling tests and embracing a values-driven, lifetime-liability-focused approach to investing. It’s time to shift the conversation from ‘What makes you comfortable today?’ to ‘What will truly serve you in the long run?’
If you’re an investor, ask yourself: Am I making decisions based on my true self—or my conditioned fears? If you’re an adviser, consider: Are you reinforcing client misconceptions, or helping them uncover financial truths?
The choice is ours—to continue with the popularity of comfortable lies or embrace the courage of uncomfortable truths.
Academy of Life Planning 