Retirement planning is supposed to be the place where cool-headed professionals steer clients away from emotional money mistakes. But financial planners are people too, and their own mental shortcuts can quietly shape the advice they give. A new study in the Journal of Behavioral Finance looked at whether Canadian financial planners exhibit common behavioral biases and whether those biases are linked to the recommendations they make about using home equity to fund retirement.
The short answer: yes, on both counts.
A gap in what we know about advisors
Researchers have spent decades cataloging the behavioral quirks of individual investors, stock analysts, traders, and fund managers. Far less attention has been paid to financial planners themselves, the people many households rely on to correct their own money missteps. Vishaal Baulkaran of the University of Lethbridge and Pawan Jain of Virginia Commonwealth University set out to fill that gap, with a specific focus on a question that’s becoming more pressing as housing wealth balloons and savings fall short: should retirees tap home equity for income?
That choice involves several competing options, including selling investments, downsizing the home, selling and renting, taking out a reverse mortgage, using a home equity line of credit (HELOC), or a traditional mortgage. The authors wanted to know whether a planner’s personal biases were linked to how willing they were to recommend these approaches.
Before going further, a quick vocabulary check on the biases at the center of the study:
- Mental accounting: treating different pots of money as separate and untouchable, even when they’re economically equivalent. A planner with this bias might view a client’s house as off-limits for funding retirement, even if tapping it would improve outcomes.
- Loss aversion: feeling losses more intensely than equivalent gains, which can push people toward overly cautious choices.
- Herding: following what others are doing rather than independent analysis.
- Gambler’s fallacy: believing that past random outcomes affect future ones (e.g., expecting a market to fall because it rose several months in a row).
- Disposition effect: a tendency to sell winning investments too soon and hold losers too long.
- Overconfidence: overestimating one’s own knowledge or skill.
How the study was designed
Working with Financial Planning Canada and the Institut Québécois de Planification Financière, the researchers distributed an anonymous online survey to planners across the country. They ended up with 479 completed responses. The respondents averaged 51 years old, had about 18 years of experience, and came from a mix of provinces, compensation structures (salary, commission, fee-only, and combinations), and employer types (including the top five Canadian banks and non-bank institutions).
Planners answered questions designed to reveal each of the six biases. They also rated, on a 0-to-10 scale, how comfortable they were advising clients on using home equity to fund retirement, and they ranked eight potential sources of retirement income in order of importance.
The authors then used statistical models (probit and tobit regressions) to see which planner characteristics were associated with each bias, and whether those biases were linked to comfort levels and recommendation rankings.
Who holds which biases
Different biases showed up in different kinds of planners.
Mental accounting was less common among female planners, those with master’s or PhD degrees, those working at non-bank institutions, and those paid via salary-and-commission structures. Planners paid on a fee-only basis showed a higher likelihood of the bias. A PhD was associated with a 46% lower probability of mental accounting bias compared to planners without one.
Loss aversion was less common among older planners, those with higher incomes, those with fee-based compensation, and those specializing in retirement planning. It was more common among planners in urban areas and those specializing in insurance products.
Herding was lower among female planners, those with more education, those with more experience, and those employed by top-five banks. Planners specializing in retirement, tax, or estate planning had a higher probability of herding behavior.
Overconfidence was less common among planners at top-five banks, and more common among those on fee-only or “other” compensation structures.
How biases line up with home-equity advice
When the researchers looked at how comfortable planners felt advising on home equity for retirement income, two biases stood out. Planners exhibiting mental accounting or herding reported being less comfortable giving that kind of advice. When all biases were considered together, overconfidence was linked to higher reported comfort, something the authors interpret as overestimation of one’s own abilities.
The rankings of retirement income options told a more detailed story:
- Selling investments was ranked as more important by planners showing mental accounting bias or gambler’s fallacy, and as less important by those with loss aversion.
- Sell and downsize was ranked as more important by planners exhibiting loss aversion, which the authors note is consistent with this option being comparatively lower-risk.
- Sell and rent was ranked higher by planners exhibiting herding behavior.
- Reverse mortgages were ranked as less important by planners with mental accounting bias. The authors suggest this fits the pattern of mentally walling off the home as a “safe” asset that shouldn’t be touched for living expenses.
- HELOCs were ranked as more important by planners showing overconfidence, and less important by those with mental accounting bias.
- Traditional mortgages were ranked as less important by planners exhibiting herding behavior.
The mental accounting pattern is especially consistent across options. A planner who mentally segregates the home from other retirement assets tends to prefer selling investments, and tends to downplay reverse mortgages and HELOCs. Whether that’s the right answer for any individual client depends on that client’s situation, but the researchers point out that a large share of many Canadians’ wealth is tied up in housing, and ignoring it altogether can expose clients to longevity risk, long-term-care risk, and house-price risk.
What it means for advisors and clients
The authors frame their findings as a call for self-awareness within the profession. If a planner’s personal biases are linked to which retirement income strategies they favor, then clients with similar financial profiles could receive different advice depending on who happens to be across the desk.
For the industry, the researchers suggest that training programs and professional development could incorporate bias-awareness modules, and that regulators could use this kind of evidence when shaping guidelines on consumer protection. For individual clients, the practical takeaway is a reminder that even professional advice is filtered through a human brain. Asking a planner to explain why a particular option was ranked above another, or seeking a second opinion on something as consequential as tapping home equity, may be worth the effort.
A few caveats are worth keeping in mind. The study is based on self-reported survey answers from Canadian planners, so the findings reflect associations rather than proven cause and effect, and patterns could differ in other countries or regulatory environments. The biases were measured with short survey questions rather than behavioral experiments, and the analysis looks at what planners say they would recommend, not what they actually do when sitting with a client. The authors are careful to describe their results as links between planner characteristics, biases, and stated recommendations.
