NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Retail Financial Advice: Does One Size Fit All?

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

NBER Working Paper No. 20712
Issued in November 2014
NBER Program(s):   AP

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.

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Document Object Identifier (DOI): 10.3386/w20712

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