Do Contracts Impact Comprehensive Financial Advice?

Abstract

Delegating management of financial decisions may involve both direct and agency costs. We hypothesize that contracting differences between financial planners and brokers may lead to differences in life insurance adequacy. Using nationally representative data, we estimate the impact of the use of planners and brokers on holding life insurance that replaces a minimum threshold of human capital. Descriptive and multivariate analyses of insurance adequacy are consistent with the hypothesis that contracting matters. Those who rely primarily on financial planners are more likely to have adequate life insurance holdings, while those who rely on the advice of brokers are no more likely to have adequate life insurance than respondents who receive no professional financial advice.

Keywords: Financial Advice, Financial Planning, Agency Theory, Life Insurance

JEL Classification: D14, D86, G22