Exploring group identity on advisors' strategic behaviour in client-advisor relationship: a lab experiment

Abstract

The financial industry for retail financial products such as insurance plans is filled with information asymmetries. Financial advisors are likely to know their financial products and its suitability better than their clients and this information asymmetry presents an opportunity for deception. Using a 2 x 2 experimental design, we investigated the effect of group identity and pledge-taking on honesty and cooperation in advice-giving. Participants completed the financial advisory task, which is an adapted sender-receiver game, advisors recommended investment portfolios and clients chose to reject or accept the recommendation, in groups. We found that pledge-taking significantly increased honesty in first advisors’ recommendation and pledge only worked better at promoting honesty and cooperation when the second advisors are in homogenous than heterogeneous groups. The findings from this experiment provided more insights on how an organisational factor, group identity, affects the behaviour of advisors in a financial advisory setting.