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Investment preferences and risk perception: Financial agents versus clients

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  • Kling, Luisa
  • König-Kersting, Christian
  • Trautmann, Stefan T.

Abstract

We study four fundamental components of financial agency settings: The perception of commonly used investment profile terminology, agents’ customization of portfolios to clients’ preferences, the effect of agents’ and clients’ preferences on investment levels, and the role of compensation schemes. We observe large heterogeneity in the perception of investment profiles, resulting in substantial miscommunication between clients and agents. Financial agents show a high willingness to implement their clients’ preferred investment profiles, yet appear to fail because of deviating perceptions. Agents’ own investment preferences matter, but take a back seat to clients’ preferences in determining investment shares. Different monetary incentive schemes hardly affect behavior. Our results suggest that moral constraints can limit agents’ discretion in the agency situation.

Suggested Citation

  • Kling, Luisa & König-Kersting, Christian & Trautmann, Stefan T., 2023. "Investment preferences and risk perception: Financial agents versus clients," Journal of Banking & Finance, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426622000887
    DOI: 10.1016/j.jbankfin.2022.106489
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    More about this item

    Keywords

    Decisions under risk; Decisions of agents; Risk perception; Financial advice;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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