Financial Advice: An Improvement for Worse?

Abstract:     
This paper examines whether professional financial advice improves individual investment decisions. Using a unique data set from a large German bank, I find that financial advisors deliver some benefits, albeit they fail to improve the individual portfolios in tangible dimensions. For instance, the involvement of financial advisors neither ameliorates account performance nor asset allocation. By contrast, self directed investors earn both higher risk adjusted returns and exhibit better asset allocation. Overall, this analysis casts some doubts on the quality of professional advice as a reliable substitute for individuals' financial literacy.

Number of Pages in PDF File: 37

Keywords: Household Finance, Financial Advice

JEL Classification: D14, D8

working papers series