Financial advisor's covert discrimination against long-term clients

Chenhao Wang, Yushui Shi and Yu-Jane Liu

Pacific-Basin Finance Journal, 2023, vol. 82, issue C

Abstract: While trust relationships are crucial for financial advisory industry, financial advisors may engage in activities that can destroy those relationships. This paper investigates whether financial advisors tend to exploit existing clients in favor of new clients. We use the offering of high-return-zero-risk products as an inverse measure for advisors' service quality in the context of Chinese trust products featuring implicit guarantees. We find that as the advisor–client tenure increases, advisors tend to recommend less high-return-zero-risk products. As a result, existing clients' investment portfolios' returns decline over time. We also find that financial advisors intensify discrimination against existing clients when the supply of high-return-zero-risk products is low. Such discrimination is particularly pronounced when clients are not wealthy or lack financial knowledge, and advisors tend to offer higher-commission products to existing clients.

Keywords: Financial advisor; Trust; Customer relationship; Discrimination (search for similar items in EconPapers)
JEL-codes: D14 D18 G20 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X23002457
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23002457

DOI: 10.1016/j.pacfin.2023.102174

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().