Financial Advisors and Investors’ Bias

72 Pages Posted: 27 Jan 2024 Last revised: 19 Mar 2024

See all articles by Marianne Andries

Marianne Andries

University of Southern California

Maxime Bonelli

London Business School - Department of Finance

David Alexandre Sraer

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: March 7, 2024

Abstract

Can financial advisors mitigate their clients’ investment biases? We answer this question by exploiting a natural experiment at a large brokerage firm that provides advisory services to high-net-worth investors. In 2018, the firm changed the information displayed on its internal platform so that financial advisors could no longer observe which of their clients’ holdings were in paper gain or loss. Using data on portfolio stock transactions between 2016 and 2021, we show that, while all investors exhibit a significant disposition effect before 2018, i.e., a greater propensity to realize paper gains than losses, highly-advised investors see their bias significantly reduced after 2018. This decrease in disposition effect bias leads to higher portfolio returns, increased client inflow, and a lower likelihood of leaving the firm. Our study highlights how manipulating advisors’ information can help mitigate investors’ biases.

Keywords: financial advisors, behavioral finance, disposition effect, investor behavior, salience, attention, household finance

JEL Classification: G4, G5, D14, G11, G24

Suggested Citation

Andries, Marianne and Bonelli, Maxime and Sraer, David Alexandre, Financial Advisors and Investors’ Bias (March 7, 2024). Available at SSRN: https://ssrn.com/abstract=4691695 or http://dx.doi.org/10.2139/ssrn.4691695

Marianne Andries

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Maxime Bonelli (Contact Author)

London Business School - Department of Finance ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

David Alexandre Sraer

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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