Investor Experience and Portfolio Choice

Abstract

MiFID II forces banks and wealth managers to ask clients for their investment knowledge and experience. The implied regulatory view is that less experience should result in less risk taking. While this is neither shared in theoretical nor in empirical finance, it becomes a source of legal risk for asset managers and banks. How do banks react? So far this question was impossible to answer. The relevant data have not been available as they are not shared by banks. We circumvene this problem by using publicly available portfolio recommendations from robo-advisory firms. These firms fall under the same regulations as banks and wealth managers with respect to MiFID II investor profiling and are often owned by traditional banks. It is therefore reasonable to assume that their treatment of investor experience is similar to traditional banks' approaches.

Keywords: Investor experience, financial market regulation, MiFID II, regulatory costs, robo-advisory

JEL Classification: G11, G18