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Unlocking clients: The importance of relationships in the financial advisory industry

Author

Listed:
  • Gurun, Umit G.
  • Stoffman, Noah
  • Yonker, Scott E.

Abstract

We investigate the importance of client relationships in the financial advisory industry. We exploit firm-level variation in adoption of the Broker Protocol, which enabled clients to follow their advisers to member firms without fear of litigation. We show that advisers’ ability to maintain client relationships is a significant predictor of their employment decisions; that about 40% of client assets follow advisers when they move; and that once clients are “unlocked,” firms become less willing to fire advisers for misconduct. Firms that unlock their clients subsequently experience higher levels of misconduct and increase their fees, calling into question whether clients are better off.

Suggested Citation

  • Gurun, Umit G. & Stoffman, Noah & Yonker, Scott E., 2021. "Unlocking clients: The importance of relationships in the financial advisory industry," Journal of Financial Economics, Elsevier, vol. 141(3), pages 1218-1243.
    • Handle: RePEc:eee:jfinec:v:141:y:2021:i:3:p:1218-1243
    DOI: 10.1016/j.jfineco.2021.04.026
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    More about this item

    Keywords

    Financial adviser; Relationships; Trust; Clients; Flows; Noncompete agreement; Broker protocol; Misconduct;
    All these keywords.

    JEL classification:

    • G5 - Financial Economics - - Household Finance
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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