Investment preferences and risk perception: Financial agents versus clients

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

Journal of Banking & Finance, 2023, vol. 154, issue C

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.

Keywords: Decisions under risk; Decisions of agents; Risk perception; Financial advice (search for similar items in EconPapers)
JEL-codes: D14 D83 G11 G21 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426622000887

DOI: 10.1016/j.jbankfin.2022.106489

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