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Retail Financial Advice: Does One Size Fit All?, Journal of Finance

Abstract

Using unique data on Canadian households, we show that financial advisors exert substantial influence over their clients' asset allocation, but provide limited customization. Advisor fixed effects explain considerably more variation in portfolio risk and home bias than a broad set of investor attributes that includes risk tolerance, age, investment horizon and financial sophistication. Advisor effects remain important even when controlling flexibly for unobserved heterogeneity through investor fixed effects. An advisor's own asset allocation strongly predicts the allocations chosen on clients' behalf. This one-size-fits-all advice does not come cheap. Advised portfolios cost 2.5% per year, or 1.5% more than lifecycle funds.

Type

Article

Author(s)

Stephen Foerster, Juhani Linnainmaa, Brian Melzer, Alessandro Previtero

Date Published

2016

Citations

Foerster, Stephen, Juhani Linnainmaa, Brian Melzer, and Alessandro Previtero. 2016. Retail Financial Advice: Does One Size Fit All?. Journal of Finance.

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