of a Google search, yielding to the site’s prioritization algorithm. Consider RIA succession planning. The lack of publicly available valuation guidelines means that RIAs rely on readily available revenue multiples to justify what they believe their firm is worth. The result can be an inflated perception of their firms’ valuations and a harsh reality check at deal time. Advisors with longer time lines use readily available data that may not apply to their particular set of circumstances, and make poor decisions that will impact their business succession.
Optimism Bias
When talk turns to their firm’s growth, some advisors ignore obvious risks because they simply assume that only good things will happen. For example, RIAs contemplating a merger or acquisition or entering a new market may consider only the most optimistic data, which does not reflect reality or what is attainable. RIA leaders sometimes seek out only that information confirming their personal beliefs—leading them to confirmation bias, a cousin of optimism bias.
False Consensus Bias
Outside of the office, it is natural to gravitate toward friends and family who validate us and boost our self-esteem. But this can be problematic for people making business decisions, and an RIA can be lulled into the trap of assuming everyone thinks the same way. By choosing partners or colleagues who are always in agreement, advisors set themselves up to entirely miss alternative arguments and find themselves blindsided by competitors’ business strategies.