Gender Differences in Financial Advice

Abstract

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