Investment Competence and Advice Seeking

Abstract

This study evaluates individuals’ abilities to avoid investment mistakes driven by behavioral biases and analyzes the relationship between investment competence and the propensity to seek or rely on professional advice. We use novel survey data collected from a representative sample of Swiss households. We find that − even after controlling for socio-economic and demographic characteristics − investment competence is positively related to demand for financial advice. It appears that investors who are at the highest risk of making investment mistakes are those who are the least likely to seek help from professional advisors. Therefore, supply-side solutions imposed by regulators to protect financial customers may not benefit those who need them most.

Keywords: financial literacy, behavioral biases, demand for financial advice, household finance

JEL Classification: D14, D83, G11, G23