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Financial Advisors: A Case of Babysitters?

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Author Info
Andreas Hackethal (Goethe University Frankfurt)
Michael Haliassos (Goethe University Frankfurt, CEPR, CFS, MEA, NETSPAR)
Tullio Jappelli () (Università di Napoli Federico II, CSEF, and CEPR)

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Abstract

We merge administrative information from a large German discount brokerage firm with regional data to examine if financial advisors improve portfolio performance. Our data track accounts of 32,751 randomly selected individual customers over 66 months and allow direct comparison of performance across self-managed accounts and accounts run by, or in consultation with, independent financial advisors. In contrast to the picture painted by simple descriptive statistics, econometric analysis that corrects for the endogeneity of the choice of having a financial advisor suggests that advisors are associated with lower total and excess account returns, higher portfolio risk and probabilities of losses, and higher trading frequency and portfolio turnover relative to what account owners of given characteristics tend to achieve on their own. Regression analysis of who uses an IFA suggests that IFAs are matched with richer, older investors rather than with poorer, younger ones.

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Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 219.

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Date of creation: 15 Mar 2009
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Handle: RePEc:sef:csefwp:219

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Related research
Keywords: Financial advice; portfolio choice; household finance;

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Find related papers by JEL classification:
G1 - Financial Economics - - General Financial Markets
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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  2. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October. [Downloadable!] (restricted)
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  4. Shapira, Zur & Venezia, Itzhak, 2001. "Patterns of behavior of professionally managed and independent investors," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1573-1587, August. [Downloadable!] (restricted)
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  6. John Y. Campbell, 2006. "Household Finance," NBER Working Papers 12149, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, 04. [Downloadable!] (restricted)
  8. Daniel Dorn & Gur Huberman, 2005. "Talk and Action: What Individual Investors Say and What They Do," Review of Finance, Oxford University Press for European Finance Association, vol. 9(4), pages 437-481. [Downloadable!] (restricted)
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  9. Lei Feng & Mark S. Seasholes, 2005. "Do Investor Sophistication and Trading Experience Eliminate Behavioral Biases in Financial Markets?," Review of Finance, Oxford University Press for European Finance Association, vol. 9(3), pages 305-351. [Downloadable!] (restricted)
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  12. William N. Goetzmann & Alok Kumar, 2008. "Equity Portfolio Diversification," Review of Finance, Oxford University Press for European Finance Association, vol. 12(3), pages 433-463. [Downloadable!] (restricted)
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  13. Terrance Odean, 1999. "Do Investors Trade Too Much?," American Economic Review, American Economic Association, vol. 89(5), pages 1279-1298, December. [Downloadable!] (restricted)
  14. Barber, Brad M. & Loeffler, Douglas, 1993. "The ?Dartboard? Column: Second-Hand Information and Price Pressure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(02), pages 273-284, June. [Downloadable!]
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