Is Conflicted Investment Advice Better than No Advice?

Chalmers, John; Reuter, Jonathan

doi:10.3386/w18158

Cited by 68 publications

(60 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Chalmers and Reuter, 2012b;Hackethal et al, 2012;Del Guercio and Reuter, 2014;Reuter, 2015). Foerster et al (2017) show that advisor fixed effects are a much more important determinant of clients' asset allocations than investor-specific attributes such as risk tolerance, age, or financial sophistication.…”

mentioning

confidence: 99%

Behavioral Household Finance

Beshears

Choi

Laibson

et al. 2018

View full text Add to dashboard Cite

This chapter provides an overview of household finance. The first part summarizes key facts regarding household financial behavior, emphasizing empirical regularities that are inconsistent with the standard classical economic model and discussing extensions of the classical model and explanations grounded in behavioral economics that can account for the observed patterns. This part covers five topics: consumption and savings, borrowing, payments, asset allocation, and insurance. The second part addresses interventions that firms, governments, and other parties deploy to shape household financial outcomes: education and information, peer effects and social influence, product design, advice and disclosure, choice architecture, and interventions that directly target prices or quantities. This chapter is divided into two parts, each of which is further divided into several sections. The first part summarizes key facts regarding household financial behavior, emphasizing empirical regularities that are inconsistent with the standard classical economic model and discussing both extensions of the classical model and explanations grounded in behavioral economics that can account for the observed patterns. This part covers five topics: (I) consumption and savings, (II) borrowing, (III) payments, (IV) asset allocation, and (V) insurance. The second part addresses interventions that firms, governments, and other parties deploy to shape household financial outcomes: (VI) education and information, (VII) peer effects and social influence, (VIII) product design, (IX) advice and disclosure, (X) choice architecture, and (XI) interventions that directly target prices or quantities. The final section of the paper (XII) concludes. John BeshearsWe offer broad coverage of the household finance literature, but we limit the scope of our discussion along some dimensions. We focus on the U.S. institutional context and on empirical work based on U.S. data, although we do bring evidence from other wealthy countries to bear when germane and occasionally reference evidence from developing countries. We address household asset allocation but do not draw out its implications for asset pricing, which are covered by the asset pricing chapter in this handbook. Although household decisions regarding health care are relevant to household finance, we largely omit this literature from our chapter because it is covered in depth in the chapter on behavioral health economics. Finally, there is some overlap between our section on financial product design and the chapter on behavioral industrial organization; we refer readers to that chapter for related material on that topic. Part 1: Facts I. Consumption and SavingsBeginning with the seminal work of Modigliani and Brumberg (1954) and Friedman (1957), economists have embraced the view that households choose to save and borrow to smooth consumption over the lifecycle. Intuitively, if agents have concave utility functions over consumption, then they should spread consumption across time to optimally...

show abstract

mentioning

confidence: 99%

Behavioral Household Finance

Beshears

Choi

Laibson

et al. 2018

View full text Add to dashboard Cite

show abstract

“…Bergstresser et al (2009) find that broker-sold mutual funds deliver lower risk-adjusted returns, even before subtracting distribution costs. Chalmers and Reuter (2012) find that broker client portfolios earn significantly lower risk-adjusted returns than matched portfolios based on target-date funds but offer similar levels of risk. Broker clients allocate more dollars to higher fee funds and participants tend to perform better when they do not have access to brokers.…”

Section: An Alternative Approach To Financial Regulationmentioning

confidence: 93%

The FinTech Opportunity

Philippon

2016

324

View full text Add to dashboard Cite

“…The empirical literature also has attributed differences in portfolio structures and performance between advised and self-directed accounts rather exclusively to supply-side factors. Empirical evidence from individual investor data Schmid, 2018, 2016;Chalmers and Reuter, 2015;Hackethal, Haliassos, and Jappelli, 2012a;Karabulut, 2013) and fund-level data (Christoffersen, Evans, and Musto, 2013;Christoffersen et al, 2013;Bergstresser, Chalmers, and Tufano, 2009) suggests that brokers and financial advisors take negative impact on their clients' portfolio performance, but have a soothing effect on common behavioral biases such as underdiversification (Hoechle et al, 2016;Gaudecker, 2015;Hackethal et al, 2012a), home bias (Kramer, 2012;Bluethgen, Gintschel, Hackethal, and Mueller, 2008) and the disposition effect (Hoechle et al, 2016;Shapira and Venezia, 2001), and generally improve financial planning (Finke, 2013;Lusardi and Mitchell, 2011).…”

Section: John Campbell Ely Lecture 2016mentioning

confidence: 99%

“…PF i,t−1 captures the client's portfolio shares 19 For instance, related papers document that (over-)confident investors are less likely to rely on financial advice (Guiso and Jappelli, 2006;Gaudecker, 2015), while investors with little confidence have been assumed to be too anxious to trade without the hand-holding of their trusted advisor (Gennaioli et al, 2015). In Chalmers and Reuter (2015), clients opting for financial advice in their retirement financial decisions are more likely to state that they would feel uncomfortable changing their asset allocation without consulting their advisor and to agree that they receive peace of mind from meeting face-to-face with their advisor. Financial confidence moreover has been linked to male gender (Bucher-Koenen and Koenen, 2015) and trading activity (Barber and Odean, 2001a).…”

Section: Do Advisors Cater To More Involved Clients?mentioning

confidence: 99%

Client Involvement in Expert Advice: Antibiotics in Finance?

et al. 2018

View full text Add to dashboard Cite

We use minutes from 17,000 financial advisory sessions and corresponding client portfolio data to study how client involvement affects advisor recommendations and portfolio outcomes. We find that advisors confronted with acquiescent clients stick to standards and recommend expensive but well diversified mutual fund portfolios. However, if advisors meet with clients who voice own ideas they deviate markedly from their standards, resulting in poorer portfolio diversification and lower Sharpe ratios. Our findings that advisors cater to client requests parallel the phenomenon of doctors prescribing antibiotics to insistent patients even if inappropriate, and imply that pandering diminishes the quality of advice.JEL-Classification Codes: D14, G11, G21

show abstract

Is Conflicted Investment Advice Better than No Advice?

Cited by 68 publications

References 0 publications

Behavioral Household Finance

Behavioral Household Finance

The FinTech Opportunity

Client Involvement in Expert Advice: Antibiotics in Finance?

Contact Info

Product

Resources

About