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Is the illusion of knowledge holding your business back?

Steve Wright asks: Is the illusion of knowledge holding your business back by preventing you from growing your skills as an adviser?

Friday, March 29th 2024, 6:47AM 7 Comments

by Steve Wright

In 1995 McArthur Wheeler robbed two banks in Pittsburgh, USA, fully aware there were security cameras and without a mask.  When arrested he was genuinely surprised - he had, after all, rubbed lemon juice on his face, believing it would make him invisible. 

This incident led two American Social Psychologists, David Dunning and Justin Kruger, to do a research project culminating in a paper entitled… "Unskilled and Unaware of It: How Difficulties in Recognizing One's Own Incompetence Lead to Inflated Self-Assessments", and leading to recognition of a phenomenon now known as The Dunning Kruger Effect. 

Charles Darwin seemingly recognised this a long time ago and is quoted as saying … “Ignorance more frequently begets confidence than does knowledge”.

Stephen Hawking is reputed to have said … “The greatest enemy of knowledge is not ignorance; it is the illusion of knowledge”. Today we probably recognise it as … “you don’t know what you don’t know” and … “ignorance is bliss”.

The Dunning Kruger Effect suggests that our confidence in our own competence is highest when our knowledge is relatively low (unjustified confidence). 

If we move past that high confidence/low knowledge point, we initially lose confidence as our increased knowledge allows us to realise things are more complex and that there is much we do not know. Confidence begins to return as we identify knowledge gaps and overcome them, leading ultimately to justified confidence in our competence.

As it turns out, for most of us, it is our own misguided comfort and associated inability to recognise a learning need, that stops us from learning.

If you don’t know what you don’t know, and you are nonetheless confident in your perceived ability, why would you do anything to get the additional knowledge needed for genuine competence?

Such a situation could have serious consequences for advisers, just as it did for McArthur Wheeler!

Good process and good conduct, important as these may be, do not guarantee acceptable advice. Acceptable advice is dependent on knowledge and the diligent, skilful, application of that knowledge.

Here's the good news

Broader and better knowledge, resulting in improved skill and justified confidence in your competence is good for business. Better skilled advisers should result in increased revenue and better business resilience!  This is because better knowledge, competence, and skill in advice, creates:

  • Engaged, confident, happy and motivated, advisers who are equipped to give great advice.
  • Confident advisers giving great advice should close more prospects and result more appropriately insured clients, resulting in more revenue.
  • Clients who get great advice from genuinely competent and confident advisers are more likely to value and trust their adviser, improving persistency, referrals, and again improving revenue.
  • Better advice will reduce the opportunity for complaints, the time spent on them, and pecuniary penalties or compensation awards - improving revenue, keeping your PI insurer happy, and protecting FAP directors.

So how good is your knowledge really?

If your answer is a confident “good”, you may have work to do. 

If your answer is a thoughtful but uncertain, “Mmmm so not sure”, you may be on your way to recognising and eliminating The Dunning Kruger Effect.

Steve Wright has qualifications in economics, law, tax, and financial planning. He has spent the last 20 years in sales, product, and professional development roles with insurers. He is now independent and helping advisers mitigate advice risk through training and advice coaching.

Tags: Opinion

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Comments from our readers

On 3 April 2024 at 10:01 pm Steve Wright said:
I got a call from an adviser asking how he could identify if there were knowledge areas he needed to improve.

We spoke for about 40 minutes and identified several areas where his knowledge was deficient, some badly so. We also Identified a couple of issues he “didn’t even know were a thing”. He’s added these issues to his CPD plan (which he had been struggling to fill) and we’ve made time over the next few weeks to improve his knowledge and understanding. I’m delighted he will get benefit from this.
On 4 April 2024 at 10:51 am JPHale said:
Nice one Steve; this is a gap for all of us. Irrespective of time and tenure, there's always something new to cover off.

I can't say I enjoy the provider accreditations that get trotted out; at the same time, it is a good refresher on obscure aspects of provider policies we might have overlooked or forgotten about.

However, we're still working with the line that a product from a licensed provider is a fit-for-purpose product.

The distinction of one policy over another doesn't appear to be in the FMA's remit and becomes one that is contested at the DRS level and complaints.

Many aspects of the new regime are yet to be tried and tested, and it's not just knowledge of policy wordings; it is everything else associated with running an advice business.

As the FAP director/manager through to the front-line adviser, we all need to have a greater understanding of how the industry and sector works to give competent advice to clients.
On 5 April 2024 at 10:06 am Steve Wright said:
Thanks Jp: I agree we all have knowledge gaps; the danger are the ones that remain unrecognised (and not dealt with) and that put advisers and FAPS at significant risk.

The issues I'm assisting with in this adviser's case are not product related - I don't know what his product knowledge is like yet.
On 5 April 2024 at 10:40 am Steve Wright said:
JP: Just on product. I don't agree that "a product from a licensed provider is a fit-for-purpose product" (if this is what you mean). It depends on the client's needs and wants.

For example, trauma cover is unlikely to be fit-for-purpose to cover the client's needs for reimbursement of private medical costs (wrong cover type).

At a more granular level, a medical insurance policy that doesn't cover unfunded drugs is not fit-for-purpose if a client is remotely concerned about those costs (all clients should be concerned about the risk of needing drugs that are not funded!). Wrong product within a cover type.

Actually, there is a question generally about whether medical insurance policies that don't cover non-funded drugs adequately are fit-for-purpose at all, especially considering that the costs of unfunded drugs, unlike many other private medical treatments, are not available publicly. Not being publicly funded at all arguably makes cover for non-funded drugs the most essential reason for private medical insurance as there is no public health to fall back on.

The distinction of one policy over another is likely within the FMA's remit depending on the circumstances, but I suspect the biggest (financial) danger may well be at complaint level, whether to a DRS or the Courts.
On 5 April 2024 at 11:33 am JPHale said:
@Steve, I agree at a client level. Yes, it's about client wants and needs. I'm talking about the higher level of need. The level being measured by the FMA.

"A product from a licensed provider is a fit-for-purpose product," meaning that a client's trauma need is considered equal to all other trauma products in the market, which I may not have been clear about. The detail of which trauma benefit is used is the adviser's call so long as a trauma benefit is recommended.

This has been a long-established point in past discussions dating back to the 2010/2011 regulation changes.

The test being made is not the coal face bespoke application of the product we advisers expect.
i.e. the differences in cancer definitions are not in the purview of the FMA, but trauma cover being prescribed for a trauma risk is.

Clearly, there's a massive issue if the client asks for medical insurance and is advised to take life cover. That's the FMA-level problem,

The test of a melanoma definition being 1mm or 1.5mm is a test at the DRS and complaint level. Maybe with the FADC if it went that way.
On 5 April 2024 at 4:34 pm Paul Flood said:

One small point: you mention that minor differences in wordings are not a FMA problem but one addressed at the DRS level or potentially the FADC level.

My understanding the only way a financial adviser can end up in front of the FADC is via referral from the FMA. If minor variations in policy wordings aren't within the purview of the FMA then getting this wrong can't land you in front of the FADC.

On 6 April 2024 at 10:29 am JPHale said:
Paul, correct. You would be in front of the FADC for other reasons and this aspect may then be included in the assessment of the case.

Being that those on a FADC are looking at the advice at a finer level.

This is where the case of replacement before the new rules with an AFA was looked at where the referral by the FMA was at a higher level to the detail of the advice.

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