Gender Differences in Financial Advice
51 Pages Posted: 4 Mar 2015 Last revised: 8 May 2020
Date Written: May 5, 2020
Financial advisors are more likely to recommend costly products to women than to men. We use minutes from about 27,000 advisor-client meetings plus archival data on client portfolios and show that there are systematic diﬀerences in why men and women receive expensive fund recommendations: For men, the likelihood of risky funds being recommended is higher and these are generally more expensive; on the other hand, within any given risk category, funds recommended to women are more costly on average. Beyond this, men are signiﬁcantly more likely to receive rebates on funds’ upfront fees. These results can be predicted by a stylized model where advisors observe imprecise signals of clients’ ﬁnancial literacy – in this case gender – and less literate clients are more likely to follow advice, even when it is not optimal. In line with the prediction, we show that objectively knowledgeable clients signaling low ﬁnancial aptitude reject advisor recommendations more frequently than equally knowledgeable clients with high signals.
Keywords: Financial advice, consumer protection, household ﬁnance, ﬁnancial literacy, discrimination, credence goods
JEL Classification: G02, E02, D08
Suggested Citation: Suggested Citation