JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

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 performance records, 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 an IFA suggests that IFAs are matched with richer, older investors rather than with poorer, younger ones.

We discuss the current state of stockownership among households in major European countries, drawing parallels and contrasts with the US experience. Our analysis of detailed microeconomic data documents increasing stock market participation and persistent differences across countries in our sample: many more US, UK and Swedish households participate in the stock market than is the case in the Netherlands and, especially, in France, Germany, and Italy. At the individual household level, the data indicate that stock market participation correlates robustly with wealth and education, which have only small effects, however, on the asset share invested in stocks by households who do participate. These empirical results point to the relevance of participation costs, and we find that indicators of such costs are consistent with the observed pattern of participation across countries. Over time, higher participation was brought about by lower participation costs. We discuss the possible impact of market entry by households with different characteristics, and outline types of policies that could mitigate any undesirable stock market effects of cheaper and broader participation. Copyright (c) CEPR, CES, MSH, 2003..