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Abraham Okusanya: Untested advice strategies are dangerous

The advice sector can learn from medicine’s centuries of experience: untested strategies are dangerous

The year was 1799. In the wee hours of a December morning, physicians were called to examine a recently retired gentleman battling a cough and cold. He had spent the previous day on horseback in the rain, supervising workers on his estate.

Sadly, after relentless bloodletting and many doses of mercury administered by three esteemed doctors, he gave up the ghost at 10pm. But this was no ordinary man. This was George Washington. America’s founding father and first president was bled to death in a failed attempt to cure him of a cold.

Strangely for us nowadays, there was nothing unique about Washington’s medical treatment at the time. For 2,000 years, bloodletting was the most common procedure in medicine.

In those days, there were no studies on the effectiveness of treatments. Medicine was more of an art than a science. Procedures were handed down from one physician to another. No clinical trials. No data collection on what worked and what did not.

The application of empirical tests to the field helped to change that. In 1921, British statistician Austin Bradford Hill laid out the template for randomised controlled trials in medicine, but it took a while before it became widely adopted.

Advice riddles with outdated practices

After complaining that “too much of what is being done in the name of healthcare lacked scientific validation”, doctor Archie Cochrane championed the introduction of randomised control trials in the NHS in the 1960s.

There are a parallels between advice today and medicine of then. Advice is riddled with practices passed from one to another with little evidence. Thankfully, there is increasing recognition of this issue.

Chief executive of the Certified Financial Planner Board of Standards in the US Kevin Keller noted: “For financial planning to fully emerge as a profession, we will need to subject the practices of planners to the academic rigour and empirical research an established profession is subject to.”

Paul Lewis: The end of advice as most know it

It is hard to believe there are folks vehemently opposed to applying empirical tests to retirement planning. This dying breed continue to advocate a make-it-up-as-you-go-along approach that has contributed to a bad reputation for advice.

They deride the idea of using historical data to assess the effectiveness of investment strategies. But if a strategy is not supported by extensive historical data, how do we know it is likely to work?

While there is no guarantee that what has worked under a wide range of historical market conditions would work in the future, ideas that lack empirical basis are hunches. Hunches are no evidence.

We need a robust framework for delivering retirement advice. We need a comprehensive body of knowledge, backed up by data. We can no longer afford to implement a strategy on the say-so of asset managers and product providers.

Hire the best PR agency in the land and buy all the ad spaces in the universe; without rigourous data your product does not deserve a place in clients’ lives.
Much like bloodletting, untested retirement and investment strategies are dangerous. I think history will judge them harshly.

Abraham Okusanya is director of Finalytiq



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There are 4 comments at the moment, we would love to hear your opinion too.

  1. Interesting article. However there is a major difference between investment and medicine. Medical research leads to medicine which actually works. Whilst the need for new antibiotics leads to the need for further research many existing drugs and treatments can be shown to work. Again and again. No one actually knows why stock markets and other asset prices fluctuate as they have done and so no amount of analysis of the past will ever show what will happen in future. I am not saying analysis is pointless but it is not really ever going to deliver solutions which work in all situations. Too many future unknown variables and too little known constants exist to make analysis useful as anything other than an indicator of the likely range of future outcomes.

  2. ‘Bloodletting’ similar to ‘untested Financial Advice’? You sometimes just couldn’t make it up?

  3. I don’t think the analogy works but the underlying point is valid

  4. Interesting. Though I would suggest that ‘retirement advice’ is simply a specific purpose sub-set of ‘investment advice’.

    It is difficult to see how the ‘scientific method’ can be applied given the already mentioned point that investment itself is unpredictable.

    Instinctively I think Rory is right but it would help to have examples of what the author thinks are the practices that need examination. Without these it’s just a largely worthless generic statement, like “lots of MM articles don’t say much of substance…”

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