To Trust is Good, but to Control Is Better: How Investors Discipline Financial Advisors'Activity

Riccardo Calcagno (), Maela Giofre' () and Maria Cesira Urzì-Brancati ()
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Maria Cesira Urzì-Brancati: University of Turin, http://www.est.unito.it/
Authors registered in the RePEc Author Service: Maria Cesira Urzì Brancati

Department of Economics and Statistics Cognetti de Martiis. Working Papers from University of Turin

Abstract: Using a survey of clients from one of the largest Italian banks, we ?nd that investors with low level of trust in professional advisors seek ?nancial counselling, but make their decisions autonomously. We investigate whether these investors exert some form of control over the recommendations they receive, and, if so, which one. Investors can push advisors to provide better recommendations either by asking for a second expert?s opinion, such as in the case of credence services, or by monitoring closely the advisor?s activity themselves. We ?nd that three quarters of investors do not exert any control on advisors. Di¤erent types of ?nancial competence ? self-assessed or test-based ? serve di¤erent purposes. The investors featuring higher self-assessed ?nancial competence are more likely to control the advisor?s activity. The mechanism through which investors exert control over the advisors? activity depends instead on the investors? degree of test-based ?nancial literacy. Investors with high ?nancial literacy directly monitor the advisors?activity. Investors with low ?nancial literacy are more likely to seek a second professional opinion in support of the recommendations previously received. Our ?ndings suggest that improving investor ?nancial knowledge may foster direct control of the advisor?s activity. Moreover, facilitating the comparison between ?nancial products by standardized and centralized information may be very e¤ective to protect poorly literate investors.

Pages: pages 55
Date: 2017-05
New Economics Papers: this item is included in nep-fle and nep-soc
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: To trust is good, but to control is better: How investors discipline financial advisors’ activity (2017)
Working Paper: To trust is good, but to control is better: How investors discipline financial advisors’ activity (2017)
Working Paper: To trust is good, but to control is better: how investors discipline financial advisors’ activity (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:uto:dipeco:201718

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