43 Pages Posted: 19 Mar 2009 Last revised: 14 Jun 2011
Date Written: June 8, 2011
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.
Keywords: Financial advice, portfolio choice, household finance
JEL Classification: G1, E2, D8
Suggested Citation: Suggested Citation
Hackethal, Andreas and Haliassos, Michael and Jappelli, Tullio, Financial Advisors: A Case of Babysitters? (June 8, 2011). Available at SSRN: https://ssrn.com/abstract=1360440 or http://dx.doi.org/10.2139/ssrn.1360440
By Marc Kramer