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Financial Advisors: A Case of Babysitters?

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We use two data sets, one from a large brokerage and another from a major bank, to ask: (i) whether financial advisors tend to be matched with poorer, uninformed investors or with richer, experienced but presumably busy investors; (ii) how advised accounts actually perform relative to self-managed accounts; (iii) whether the contribution of independent and bank advisors is similar. We find that advised accounts offer on average lower net returns and inferior risk-return tradeoffs (Sharpe ratios). Trading costs contribute to outcomes, as advised accounts feature higher turnover, consistent with commissions being the main source of advisor income. Results are robust to controlling for investor and local area characteristics. The results apply with stronger force to bank advisors than to independent financial advisors, consistent with greater limitations on bank advisory services.

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  • Andreas Hackethal & Michael Haliassos & Tullio Jappelli, 2009. "Financial Advisors: A Case of Babysitters?," CSEF Working Papers 219, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 03 Mar 2011.
  • Handle: RePEc:sef:csefwp:219
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    More about this item

    Keywords

    Financial advice; portfolio choice; household finance;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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