Retail Financial Advice: Does One Size Fit All?

Stephen Foerster, Juhani T. Linnainmaa, Brian Melzer and Alessandro Previtero

No 20712, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D14 G11 G20 (search for similar items in EconPapers)
Date: 2014-11
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Published as STEPHEN FOERSTER & JUHANI T. LINNAINMAA & BRIAN T. MELZER & ALESSANDRO PREVITERO, 2017. "Retail Financial Advice: Does One Size Fit All?," The Journal of Finance, vol 72(4), pages 1441-1482.

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