What is it about?
Working with one of the largest brokerages in Germany, we record what happens when unbiased investment advice is offered to a random set of approximately 8,000 active retail customers out of the brokerage's several hundred thousand retail customers. We find that investors who most need the financial advice are least likely to obtain it. The investors who do obtain the advice (about 5%), however, hardly follow the advice and do not improve their portfolio efficiency by much. Overall, our results imply that the mere availability of unbiased financial advice is a necessary but not sufficient condition for benefiting retail investors.
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Why is it important?
Regulation these days tries to make suppliers of financial advice honest. Our paper is the first paper which shows that the demand side is important. What is the point of honest financial advice if advisees do not follow it?
Perspectives
This was the first field experiment I have taken part in. It was a super learning experience.
Professor Utpal Bhattacharya
Hong Kong University of Science and Technology
Read the Original
This page is a summary of: Is Unbiased Financial Advice to Retail Investors Sufficient? Answers from a Large Field Study, Review of Financial Studies, January 2012, Oxford University Press (OUP),
DOI: 10.1093/rfs/hhr127.
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