Working Paper: CEPR ID: DP7235
Authors: Andreas Hackethal; Michalis Haliassos; Tullio Jappelli
Abstract: We merge administrative information from a large German discount brokerage firm with regional data to examine if financial advisors improve portfolio performance. Our data track accounts of 32,751 randomly selected individual customers over 66 months and allow direct comparison of performance across self-managed accounts and accounts run by, or in consultation with, independent financial advisors. In contrast to the picture painted by simple descriptive statistics, econometric analysis that corrects for the endogeneity of the choice of having a financial advisor suggests that advisors are associated with lower total and excess account returns, higher portfolio risk and probabilities of losses, and higher trading frequency and portfolio turnover relative to what account owners of given characteristics tend to achieve on their own. Regression analysis of who uses a financial advisor suggests that advisors are matched with richer, older investors rather than with poorer, younger ones
Keywords: financial advice; household finance; portfolio choice
JEL Codes: D8; E2; G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial advisors (G24) | lower total and excess account returns (G19) |
| financial advisors (G24) | higher portfolio risk (G11) |
| financial advisors (G24) | higher trading frequency (G14) |
| financial advisors (G24) | increased probabilities of losses (G33) |
| financial advisors (G24) | no significant reduction in probability of losses (G22) |