Do Financial Advisors Exploit Responsible Investment Preferences?
Tinbergen Institute Discussion Paper 2021-070/IV
96 Pages Posted: 22 Jul 2021
Date Written: July 20, 2021
An unprecedented number of investors are giving their financial advisors a mandate for socially responsible investing (SRI). Yet, the impact of SRI mandates on consumers is unclear. In a pre-registered lab-in-the-field experiment with 345 professional advisors, we find that advisors charge a premium to SRI clients that cannot be justified by higher effort, skill, or costs. This suggests that advisors exploit the SRI preferences of their clients (who accept these higher fees). In an independent survey, financial regulators predict higher SRI fees but do not predict exploitation. Regulators confirm that our findings are externally valid and require attention from policymakers.
Keywords: Experimental Finance, Financial Advice, Socially Responsible Investments
JEL Classification: G11, C93
Suggested Citation: Suggested Citation