What is the Impact of Financial Advisors on Retirement Portfolio Choices and Outcomes?

43 Pages Posted: 6 Jun 2012

See all articles by John Chalmers

John Chalmers

University of Oregon

Jonathan Reuter

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: May 21, 2012

Abstract

Within the Oregon University System’s defined contribution retirement plan, one investment provider offers access to face-to-face financial advice through its network of brokers. We find that younger, less highly educated, and less highly paid employees are more likely to choose this provider. To benchmark the portfolios of broker clients, we use the actual portfolios of self-directed investors and counterfactual portfolios constructed using target-date funds, a popular default investment. Broker clients allocate contributions across a larger number of investments than self-directed investors, and they are less likely to remain fully invested in the default option. However, broker clients’ portfolios are significantly riskier than self-directed investors’ portfolios, and they underperform both benchmarks. Exploiting across-fund variation in broker compensation, we find that broker clients’ allocations are higher when broker fees are higher. Survey responses from current plan participants support our identifying assumption that the portfolio choices of broker clients reflect the recommendations of their brokers.

Suggested Citation

Chalmers, John and Reuter, Jonathan, What is the Impact of Financial Advisors on Retirement Portfolio Choices and Outcomes? (May 21, 2012). Available at SSRN: https://ssrn.com/abstract=2078536 or http://dx.doi.org/10.2139/ssrn.2078536

John Chalmers (Contact Author)

University of Oregon ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-3337 (Phone)

Jonathan Reuter

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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