Third Party Quality Certification in the Market for Financial Advice

Abstract

We study third party quality certification in the market for financial advice. Using 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 effect is robust to controlling for increased media attention and are larger for those from smaller firms and newer advisors. Consistent with reputational models of the advisory industry, after certification, advisors are less likely to engage in misconduct.

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