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http://ssrn.com/abstract=968197
 
 

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Financial Advice and Individual Investors' Portfolios


Ralph Bluethgen


EBS Universität für Wirtschaft und Recht - EBS Business School

Andreas Gintschel


JPMorgan

Andreas Hackethal


Goethe University Frankfurt - Department of Finance

Armin Mueller


EBS Universität für Wirtschaft und Recht - EBS Business School

March 1, 2008


Abstract:     
This paper is an early response to Campbell's (2006) call to analyze the role of financial intermediaries in household finance. We first sketch a basic theory of financial advice that proceeds from cognitive errors and costly information acquisition. We then derive hypotheses about honest and deceptive financial advice and test them on a unique administrative dataset from a large German retail bank. We find that the clients advised are older, wealthier, more risk averse and more likely to be female. Financial advice enhances portfolio diversification, makes investor portfolios more congruent with predefined model portfolios, and increases investors' fee expenses. Our empirical evidence is broadly in line with honest financial advice. A general implication of the paper is that financial advisory service has a significant impact on household investment behavior and that it deserves more attention in future research on household finance.

Number of Pages in PDF File: 40

Keywords: Household finance, financial advice, investment behavior

JEL Classification: D14, G21

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Date posted: March 6, 2007 ; Last revised: March 15, 2008

Suggested Citation

Bluethgen, Ralph and Gintschel, Andreas and Hackethal, Andreas and Mueller, Armin, Financial Advice and Individual Investors' Portfolios (March 1, 2008). Available at SSRN: http://ssrn.com/abstract=968197 or http://dx.doi.org/10.2139/ssrn.968197

Contact Information

Ralph Bluethgen
EBS Universität für Wirtschaft und Recht - EBS Business School ( email )
Gustav-Stresemann-Ring 3
65189 Wiesbaden, Hessen
Germany
Andreas Gintschel
JPMorgan ( email )
Junghofstrasse 14
Frankfurt, 60311
Germany
+49 69 7124 2195 (Phone)
Andreas Hackethal (Contact Author)
Goethe University Frankfurt - Department of Finance ( email )
House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany
+49 69 79833700 (Phone)
Armin Mueller
EBS Universität für Wirtschaft und Recht - EBS Business School ( email )
Gustav-Stresemann-Ring 3
65189 Wiesbaden, Hessen
Germany
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