Advising the Advisors: Evidence from ETFs
37 Pages Posted: 7 Dec 2021 Last revised: 19 May 2022
Date Written: November 27, 2021
Abstract
Asset managers play a dual role by simultaneously managing funds and increasingly providing investment model recommendations to third-party financial advisors. Using a novel data set focusing on recommendations by ETF issuers and strategists, we discover that these recommendations have a substantial impact on ETF flows. Model providers recommend their affiliated ETFs more frequently, and these tend to have higher fees and lower performance than recommended unaffiliated ETFs. In addition, investors who follow the recommendations exhibit weaker sensitivity to funds’ prices and returns. We fail to find evidence that recommendations are driven by private information about the future outperformance of affiliated funds.
Keywords: Exchange-traded funds, Recommendations, Institutional Asset Management, Financial Advisors, Model Portfolios
JEL Classification: G11, G23
Suggested Citation: Suggested Citation