Working Paper: NBER ID: w20712
Authors: Stephen Foerster; Juhani T. Linnainmaa; Brian T. Melzer; Alessandro Previtero
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.
Keywords: financial advisors; risk-taking; portfolio management; Canada
JEL Codes: D14; G11; G20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| advisor fixed effects (C23) | variation in client risk-taking (D91) |
| financial advisors (G24) | portfolio risk-taking (G11) |
| financial advisors (G24) | likelihood of clients owning risky assets (D14) |
| financial advisors (G24) | proportion of equities in client portfolios (G11) |
| regulatory change (L51) | advisor supply (Z31) |