Third Party Quality Certification in the Market for Financial Advice

Abstract

We study third party quality certification in the market for financial advice. Using the Barron's Top Financial Advisors rankings, we find evidence that being named a top advisor increases both assets under management and accounts for individuals and their firms. The effects increase sharply around thresholds for certification suggesting that clients value the certification itself and not solely the underlying quality. The certification effects are larger for those from smaller firms and newer advisors. Consistent with models of reputation in the financial advisory industry, after certification, advisors are less likely to engage in misconduct.

Keywords: Financial Advisors, Barron's Rankings, Third-party certification, Reputation, Financial Misconduct