Financial Advice and Individual Investors' Portfolios

40 Pages Posted: 6 Mar 2007 Last revised: 1 Mar 2015

Ralph Bluethgen

EBS Universität für Wirtschaft und Recht - EBS Business School

Andreas Gintschel

JPMorgan

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE

Armin Mueller

EBS Universität für Wirtschaft und Recht - EBS Business School

Date Written: March 1, 2008

Abstract

This paper is an early response to Campbell's (2006) call to analyze the role of financial intermediaries in household finance. We first sketch a basic theory of financial advice that proceeds from cognitive errors and costly information acquisition. We then derive hypotheses about honest and deceptive financial advice and test them on a unique administrative dataset from a large German retail bank. We find that the clients advised are older, wealthier, more risk averse and more likely to be female. Financial advice enhances portfolio diversification, makes investor portfolios more congruent with predefined model portfolios, and increases investors' fee expenses. Our empirical evidence is broadly in line with honest financial advice. A general implication of the paper is that financial advisory service has a significant impact on household investment behavior and that it deserves more attention in future research on household finance.

Keywords: Household finance, financial advice, investment behavior

JEL Classification: D14, G21

Suggested Citation

Bluethgen, Ralph and Gintschel, Andreas and Hackethal, Andreas and Mueller, Armin, Financial Advice and Individual Investors' Portfolios (March 1, 2008). Available at SSRN: https://ssrn.com/abstract=968197 or http://dx.doi.org/10.2139/ssrn.968197

Ralph Bluethgen

EBS Universität für Wirtschaft und Recht - EBS Business School ( email )

Gustav-Stresemann-Ring 3
65189 Wiesbaden, Hessen
Germany

Andreas Gintschel

JPMorgan ( email )

Junghofstrasse 14
Frankfurt, 60311
Germany
+49 69 7124 2195 (Phone)

Andreas Hackethal (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Armin Mueller

EBS Universität für Wirtschaft und Recht - EBS Business School ( email )

Gustav-Stresemann-Ring 3
65189 Wiesbaden, Hessen
Germany

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