Client Involvement in Expert Advice: Antibiotics in Finance?

44 Pages Posted: 30 May 2018 Last revised: 24 Aug 2018

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE

Christine Laudenbach

Goethe University Frankfurt

Steffen Meyer

Leibniz Universität Hannover

Annika Weber

Goethe University Frankfurt

Date Written: July 23, 2018

Abstract

We use minutes from 17,000 financial advisory sessions and corresponding client portfolio data to study how active client involvement affects advisor recommendations and portfolio outcomes. We find that advisors confronted with acquiescent clients stick to their standards and recommend expensive but well diversified mutual fund portfolios. However, if clients take an active role in the meetings, advisors deviate markedly from their standards, resulting in poorer portfolio diversification and lower Sharpe ratios. Our findings that advisors cater to client requests parallel the phenomenon of doctors prescribing antibiotics to insistent patients even if inappropriate, and imply that pandering diminishes the quality of advice.

Keywords: Financial Advice, Individual Investors, Client Involvement

JEL Classification: D14, G11, G21

Suggested Citation

Hackethal, Andreas and Laudenbach, Christine and Meyer, Steffen and Weber, Annika, Client Involvement in Expert Advice: Antibiotics in Finance? (July 23, 2018). SAFE Working Paper No. 219. Available at SSRN: https://ssrn.com/abstract=3178664 or http://dx.doi.org/10.2139/ssrn.3178664

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Christine Laudenbach

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt, 60323
Germany

Steffen Meyer

Leibniz Universität Hannover ( email )

Königsworther Platz 1
Hannover, DE 30167
Germany

Annika Weber (Contact Author)

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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