The Influence of Financial Advice on the Asset Allocation of Individual Investors

33 Pages Posted: 17 Mar 2008

See all articles by Christian Jansen

Christian Jansen

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting

Rene Fischer

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE

Date Written: January 2008

Abstract

Many private investors trust in the investment recommendations of professional financial advisors. This study investigates the influence of financial advice on the suitability of asset allocation based on the risk preferences of individual investors. We draw on a unique dataset from a large German retail bank that combines customer and advisor attributes with internal records of customer portfolios. We find strong evidence that financial advisors have an incentive to promote equity-concentrated asset allocations that are not commensurate with investor risk preferences. Moreover, we find that a lack of insight into customers' risk aversion aggravates the unsuitability of the asset allocation. We conclude that there might be a need for enhanced regulative investor protection.

Keywords: individual investors, financial advice, asset allocation, conflict of interest, incentives

JEL Classification: G11, D12

Suggested Citation

Jansen, Christian and Fischer, Rene and Hackethal, Andreas, The Influence of Financial Advice on the Asset Allocation of Individual Investors (January 2008). EFA 2008 Athens Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1102092 or http://dx.doi.org/10.2139/ssrn.1102092

Christian Jansen (Contact Author)

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

Rene Fischer

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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