Retail Financial Advice: Does One Size Fit All?

52 Pages Posted: 1 Dec 2014

See all articles by Stephen R. Foerster

Stephen R. Foerster

University of Western Ontario - Richard Ivey School of Business

Juhani T. Linnainmaa

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Brian Melzer

Federal Reserve Bank of Chicago

Alessandro Previtero

Indiana University - Kelley School of Business - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: November 2014

Abstract

Using unique data on Canadian households, we assess the impact of financial advisors on their clients' portfolios. We find that advisors induce their clients to take more risk, thereby raising expected returns. On the other hand, we find limited evidence of customization: advisors direct clients into similar portfolios independent of their clients' risk preferences and stage in the life cycle. An advisor's own portfolio is a good predictor of the client's portfolio even after controlling for the client's characteristics. This one-size-fits-all advice does not come cheap. The average client pays more than 2.7% each year in fees and thus gives up all of the equity premium gained through increased risk-taking.

Suggested Citation

Foerster, Stephen R. and Linnainmaa, Juhani T. and Melzer, Brian and Previtero, Alessandro, Retail Financial Advice: Does One Size Fit All? (November 2014). NBER Working Paper No. w20712. Available at SSRN: https://ssrn.com/abstract=2532293

Stephen R. Foerster (Contact Author)

University of Western Ontario - Richard Ivey School of Business ( email )

1255 Western Road
London, Ontario N6G 0N1
Canada
519-661-3726 (Phone)
519-661-3485 (Fax)

Juhani T. Linnainmaa

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.tuck.dartmouth.edu/faculty/faculty-directory/juhani-linnainmaa

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Brian Melzer

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

Alessandro Previtero

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
+1 (512) 581-5420 (Phone)

HOME PAGE: http://aleprevitero.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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