Financial Advisors: A Case of Babysitters?

By Andreas Hackethal, Michael Haliassos, Tullio Jappelli. Social Science Research Network, 2012

428 citations recorded by the source corpus.

We use two data sets, one from a large brokerage and another from a major bank, to ask: (i) whether financial advisors are more likely to be matched with poorer, uninformed investors or with richer and experienced investors; (ii) how advised accounts actually perform relative to self-managed accounts; (iii) whether the contribution of independent and bank advisors is similar. We find that advised accounts offer on average lower net returns and inferior risk-return tradeoffs (Sharpe ratios). Trading costs contribute to outcomes, as advised accounts feature higher turnover, consistent with commissions being the main source of advisor income. Results are robust to controlling for investor and local area characteristics. The results apply with stronger force to bank advisors than to independent financial advisors, consistent with greater limitations on bank advisory services.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/1b28c9bd4eeb0579a07bf2df2a44f4f70247e0a6

How researchers see this paper

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

In Accounting

In Finance

Citations in the corpus

How Financially Literate Are Women? An Overview and New Insights (2017, result): “This finding supports work that shows that financial literacy and financial advice are complements rather than substitutes (Hackethal et al. 2012; Collins, 2012; Bucher-Koenen and Koenen, 2014).”
On a Need-to-Know Basis: How the Distribution of Responsibility Between Couples Shapes Financial Literacy and Financial Outcomes (2019, background): “2016) and engage in suboptimal financial practices (Gennaioli et al. 2015; Hackethal et al. 2012).”
Catering to Investors Through Security Design: Headline Rate and Complexity (2017, background): “The present paper also complements research on the dark side of financial advice provided to retail clients (Inderst and Ottaviani, 2009; Anagol et al., 2013; Bergstresser and Beshears, 2010; Hackethal et al., 2012; Karabulut, 2013; Hoechle et al., 2015; Foerster et al., 2015; Gennaioli et al., 2015”
Financial Literacy, Confidence and Financial Advice Seeking (2016, background): “Only in the retail bank sample can a significant effect be observed: 75% of the investors above 60 years old consult an advisor, compared to 53% of those aged 40 or below, a finding consistent with Hackethal et al. (2012).”
The Market for Financial Advice: An Audit Study (2012, neutral): “(2008), Chalmers and Reuter (2011), Hackethal et al. (2011, 2012), Kramer (2012), and Bhattarchaya et al. (2012) use data on portfolio outcomes or trading volume to quantify the benefits of financial advice.”
Financial literacy, financial advice, and financial behavior (2017, background): “Hackethal et al. (2011), who study the trading behavior of advised retail clients using data from German brokerage accounts, find that they are less likely to implement the advice given to them when their financial sophistication is higher.”
Financial Literacy and Financial Advice Seeking for Retirement Investment Choice (2019, background): “These results are partly in line with Hackethal et al. (2012), who found that the age of respondents is positively associated with advice seeking. Recently, Kramer (2016) has indicated that less educated investors have a lower propensity to seek advice. However, when financial literacy is factored i”
How Does Household Portfolio Diversification Vary with Financial Literacy and Financial Advice (2011, neutral): “A very popular alternative for investigating individual investment behaviour is to obtain data from discount brokers (Barber and Odean, 2000, 2001; Goetzmann and Kumar, 2008; Hackethal et al., 2011; Ivković et al., 2005, 2008; Korniotis and Kumar, forthcoming; Odean, 1998).”
Financial Literacy and the Demand for Financial Advice (2015, neutral): “Moreover, we wish to thank Laura Marzorati at Pioneer Investments for providing access to the Unicredit Customers’ Survey.”
Retail Financial Advice: Does One Size Fit All? (2015, positive): “…brokered mutual funds underperform non-brokered funds (Bergstresser, Chalmers, and Tufano 2009; Christoffersen, Evans, and Musto 2013) and investors who pay for advice underperform lifecycle funds (Chalmers and Reuter 2013) and self-managed accounts (Hackethal, Haliassos, and Jappelli 2012).”