Halo Effect in Finance: Outsmarting Bias in Money Decisions

Ever picked a bank because a friend raved about their friendly staff, only to discover their interest rates weren’t so friendly? Or invested in a company because of a charismatic CEO, overlooking the numbers? If so, you’ve been touched by the halo effect—a psychological shortcut that’s as powerful as it is subtle in Australian finance.

What Exactly Is the Halo Effect?

The halo effect is a type of cognitive bias where our overall impression of a person, brand, or product positively influences our perception of their other qualities. In finance, this can mean making decisions based on reputation, slick advertising, or a single standout feature—while ignoring crucial details that really matter to your bottom line.

For example, a 2024 ASIC survey found that 42% of Australians rated their bank’s trustworthiness based on brand image and customer service, rather than comparing actual loan terms or fees. With new financial products and digital banks launching in 2025, the risk of falling for a shiny ‘halo’ has only grown.

How the Halo Effect Impacts Your Wallet

• Investment Choices: Investors often flock to companies with charismatic leaders or strong brand presence (think: tech darlings or green startups), sometimes ignoring underlying financials. This bias can lead to overvalued portfolios or missing red flags.

• Banking & Loans: Australians may choose a lender based on positive online reviews or attractive marketing—yet overlook high fees, restrictive terms, or lacklustre digital tools. In 2025, with more online-only banks and BNPL services, this bias is even more relevant.

• Superannuation Funds: A fund with a strong reputation or clever advertising might feel like a ‘safe bet’, but recent APRA data shows that past performance and brand image often have little correlation with future returns or member benefits.

Even the growing popularity of ESG (environmental, social, governance) funds can be influenced by the halo effect. Companies that score well on one ESG metric (say, renewable energy) may get a pass on weaker governance or social policies, leading to less balanced investment decisions.

Outsmarting the Halo Effect in 2025

While the halo effect is hardwired into human psychology, you can counteract it with a few practical strategies:

• Break Down Decisions: When evaluating a financial product, list out key features—like interest rates, fees, digital tools, and customer support—separately. Score each on its own merit before considering the overall brand impression.

• Use Independent Comparisons: Leverage updated 2025 comparison tools from sources like Canstar or MoneySmart, which provide side-by-side data stripped of marketing gloss.

• Ask ‘Halo-Busting’ Questions: If a product or company seems perfect, dig deeper. What are its drawbacks? What do recent customer complaints reveal? Has the provider changed terms recently?

• Beware of ‘Star Power’: Don’t let a CEO’s media presence or a brand’s social responsibility campaign sway your judgement. Check the actual numbers—fees, returns, risk profiles—against industry benchmarks.

• Review Regularly: Set a calendar reminder to review your financial choices every six to twelve months. As new information or products emerge, reassess without relying on past impressions.

In 2025, as the Australian finance landscape grows more crowded and competitive, recognising and resisting the halo effect isn’t just smart—it’s essential for protecting your money and making confident choices.

Real-World Example: The Digital Bank Boom

The surge in digital banks over the past year offers a prime example. Some neobanks have launched with slick apps, bold branding, and influencer campaigns, quickly amassing sign-ups. Yet a 2025 CHOICE review found that several of these banks offered limited ATM access, higher international transaction fees, or subpar customer support compared to traditional banks. Customers drawn in by the ‘halo’ of modern tech sometimes missed these details—until it cost them.

Conclusion: Stay Savvy, Stay Sceptical

The halo effect is a natural mental shortcut, but it can quietly cost you thousands over the years. By actively questioning first impressions and using data-driven comparisons, you’ll make sharper, more confident financial decisions in 2025 and beyond.