Finding a Friend in Turmoil: A Study of Directly-Held Equity and the Dynamics of Financial Advice During the Great Recession

Abstract

The period of the market correction that followed the Great Recession of 2008 was a time of confusion and distrust. This study intends to find if the financial decisions of some households during this period were more optimal than others, and compare it to the dynamics of their use of certain types of financial advisers. The respondents in the 2009 panel of Survey of Consumer Finances identified advisers as Financial Planners, Brokers, Accountants, Lawyers, Insurance Agents, and Bankers. The continuity of the adviser-use is divided into four groups, keep-adviser, get-adviser, lose-adviser, and no-adviser. The decision to hold-on to or increase the directly held equity by the households can be used as a proxy for trust in the financial markets after the downturn. The study controls for various aspects such as finances, situations, behaviors, shocks, and individual-level heterogeneity and finds that continuity in the use of Broker services and discontinuity in the use of Financial Planner services resulted in highly suboptimal decisions, ceteris paribus.

Keywords: Financial Planning, Great Recession, Financial Advice

JEL Classification: D14