Advising the Advisors: Evidence from ETFs
45 Pages Posted: 7 Dec 2021 Last revised: 19 Dec 2022
Date Written: November 27, 2021
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 on recommendations by ETF issuers and strategists, we show that the $4.8 trillion recommendation market has a substantial impact on ETF flows. Model providers recommend their affiliated ETFs more frequently. These funds tend to have higher fees and lower performance than recommended unaffiliated ETFs. In addition, investors following the recommendations exhibit weaker sensitivity to funds’ returns. We fail to find evidence that recommendations are driven by private information about the future performance of affiliated funds.
Keywords: Exchange-traded funds, Recommendations, Institutional Asset Management, Financial Advisors, Model Portfolios
JEL Classification: G11, G23
Suggested Citation: Suggested Citation