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Retail Financial Advice: Does One Size Fit All?

Listed author(s):
  • Stephen Foerster
  • Juhani T. Linnainmaa
  • Brian T. Melzer
  • Alessandro Previtero
Registered author(s):

    Using unique data on Canadian households, we assess the impact of financial advisors on their clients' portfolios. We find that advisors induce their clients to take more risk, thereby raising expected returns. On the other hand, we find limited evidence of customization: advisors direct clients into similar portfolios independent of their clients' risk preferences and stage in the life cycle. An advisor's own portfolio is a good predictor of the client's portfolio even after controlling for the client's characteristics. This one-size-fits-all advice does not come cheap. The average client pays more than 2.7% each year in fees and thus gives up all of the equity premium gained through increased risk-taking.

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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20712.

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    Date of creation: Nov 2014
    Handle: RePEc:nbr:nberwo:20712
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