The Decision to Seek Advice in the Self-Directed Retirement Fund Industry
29 Pages Posted: 18 Jan 2017
Date Written: 2015
This article examines the influence of investor knowledge and the cognitive bias which arises from overconfidence on the advice seeking behaviour of investors managing their own retirement funds. Specifically, we trace whether overestimating one’s own technical and financial abilities can hinder the willingness to seek advice, particularly when it would be in the investors’ best interest to do so. We identify a subset of investors who are not knowledgeable and yet do not seek advice. These investors exhibit overconfidence in their ability to manage a fund, despite holding under-diversified and less sophisticated portfolios relative to their peers. Given the global rise in investors choosing to manage their own retirement funds and the importance of seeking advice in this context, there are direct policy implications from these results. They suggest a need to identify and target investors who display overconfidence since they are most likely to be managing under-performing retirement investments in the longer term.
Keywords: overconfidence, literacy, pension plan, financial advice, investment decision
JEL Classification: D14, G11, J32
Suggested Citation: Suggested Citation