Financial Advisors: A Case of Babysitters?

43 Pages Posted: 20 Jun 2010

See all articles by Andreas Hackethal

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE

Michael Haliassos

Goethe University Frankfurt - House of Finance; Goethe University Frankfurt - Faculty of Economics and Business Administration; CEPR; NETSPAR; Goethe University Frankfurt - Institute for Monetary and Financial Stability (IMFS)

Tullio Jappelli

University of Naples Federico II - Department of Economics and Statistics; Center for Studies in Economics and Finance - CSEF; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 4 versions of this paper

Date Written: April 19, 2010

Abstract

We use two administrative data sets, from a large internet broker and from a major commercial bank, together with regional data to ask three questions: (i) whether financial advisors tend to be matched with poorer, uninformed investors or with richer, experienced but presumably busy investors; (ii) how accounts run without financial advice actually perform relative to those run with advice; (iii) whether the contribution of advisors is similar across advisory models - independent (IFA) versus bank financial advisors (BFA). Controlling for investors’ characteristics and for the possibility that unobserved factors contribute both to the use of IFAs and to account performance, advised accounts offer on average lower raw and abnormal returns and higher diversifiable risk. Higher trading costs contribute to return outcomes, as advised accounts feature more frequent trading and higher portfolio turnover. Robustness analysis suggests that the negative role of advisors is not sensitive to the choice of asset pricing model, and applies with similar or stronger force to BFAs, consistent with greater limitations faced by them on recommended products and nature of advice.

Keywords: financial advice, portfolio choice, household finance

JEL Classification: G1, E2, D8

Suggested Citation

Hackethal, Andreas and Haliassos, Michael and Jappelli, Tullio, Financial Advisors: A Case of Babysitters? (April 19, 2010). Netspar Discussion Paper No. 04/2010-017, Available at SSRN: https://ssrn.com/abstract=1626160 or http://dx.doi.org/10.2139/ssrn.1626160

Andreas Hackethal

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

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

Leibniz Institute for Financial Research SAFE ( email )

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

Michael Haliassos (Contact Author)

Goethe University Frankfurt - House of Finance

Theodor-W.-Adorno-Platz 3
PF H32
Frankfurt am Main, 60323
Germany

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

Theodor-W.-Adorno-Platz 3
PF H32
Frankfurt am Main, D-60323
Germany

CEPR

London
United Kingdom

NETSPAR ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Goethe University Frankfurt - Institute for Monetary and Financial Stability (IMFS) ( email )

Theodor-W.-Adorno-Platz 1
Frankfurt, 60323
Germany

Tullio Jappelli

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy

HOME PAGE: http://www.csef.it/people/jappelli.htm

Center for Studies in Economics and Finance - CSEF

University of Naples Federico II
Via Cinthia - Monte S. Angelo
Napoli, 80146
Italy

HOME PAGE: http://www.csef.it/people/jappelli.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/researchers/details/rschcontact.asp?IDENT=106354

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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