The Misguided Beliefs of Financial Advisors

By Juhani T. Linnainmaa, Brian T. Melzer, Alessandro Previtero. Journal of Finance, 2020

130 citations recorded by the source corpus.

A common view of retail finance is that conflicts of interest contribute to the high cost of advice. Within a large sample of Canadian financial advisors and their clients, however, we show that advisors typically invest personally just as they advise their clients. Advisors trade frequently, chase returns, prefer expensive, actively managed funds, and underdiversify. Advisors' net returns of −3% per year are similar to their clients' net returns. Advisors do not strategically hold expensive portfolios only to convince clients to do the same; they continue to do so after they leave the industry.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/17e57eae20851c250b8a1ec4236bbc8659f6f02e

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

1. Francesco D’acunto
2. Nagpurnanand R. Prabhala
3. Mohd Rizal Palil

In Economics and Econometrics

1. Francesco D’acunto
2. Nagpurnanand R. Prabhala

In Finance

1. Francesco D’acunto
2. Nagpurnanand R. Prabhala
3. Mohd Rizal Palil

Citations in the corpus

• The Promises and Pitfalls of Robo-Advising (2019, background): “At the same time, financial advisers might themselves display behavioral biases or cognitive limitations, and hence be unable to provide effective advising (Linnainmaa, Melzer, and Previtero, 2016).”