Unlocking clients: The importance of relationships in the financial advisory industry

65 Pages Posted: 1 Mar 2018 Last revised: 18 Sep 2020

See all articles by Umit Gurun

Umit Gurun

University of Texas at Dallas

Noah Stoffman

Indiana University - Kelley School of Business - Department of Finance

Scott E. Yonker

Cornell University - Dyson School of Applied Economics and Management

Date Written: July 1, 2020

Abstract

We investigate the importance of client relationships in the financial advisory industry. We exploit firm-level variation in adoption of the Broker Protocol, which enabled clients to follow their advisers to member firms without fear of litigation. We show that advisers’ ability to maintain client relationships is a significant predictor of their employment decisions; that about 40\% of client assets follow advisers when they move; and that once clients are ``unlocked,” firms become less willing to fire advisers for misconduct. Firms that unlock their clients subsequently experience higher levels of misconduct and increase their fees, calling into question whether clients are better off.

Keywords: Financial adviser, relationships, trust, clients, flows, non-compete agreement, broker protocol, misconduct

JEL Classification: G5, G24, G23, J41, J42, K31

Suggested Citation

Gurun, Umit and Stoffman, Noah and Yonker, Scott E., Unlocking clients: The importance of relationships in the financial advisory industry (July 1, 2020). Journal of Financial Economics (JFE), Forthcoming, Kelley School of Business Research Paper No. 18-29, Available at SSRN: https://ssrn.com/abstract=3132127 or http://dx.doi.org/10.2139/ssrn.3132127

Umit Gurun

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

HOME PAGE: http://www.umitgurun.com

Noah Stoffman

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

1309 E. 10th St.
Bloomington, IN 47405
United States
(812) 856-5664 (Phone)

HOME PAGE: http://kelley.iu.edu/nstoffma/

Scott E. Yonker (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

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