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The Misguided Beliefs of Financial Advisors
Author(s) -
LINNAINMAA JUHANI T.,
MELZER BRIAN T.,
PREVITERO ALESSANDRO
Publication year - 2021
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12995
Subject(s) - finance , business , sample (material) , advice (programming) , net worth , economics , actuarial science , marketing , debt , chemistry , chromatography , computer science , programming language
A common view of retail finance is that conflicts of interest contribute to the high cost of advice. Within a large sample of Canadian financial advisors and their clients, however, we show that advisors typically invest personally just as they advise their clients. Advisors trade frequently, chase returns, prefer expensive and actively managed funds, and underdiversify. Advisors' net returns of −3% per year are similar to their clients' net returns. Advisors do not strategically hold expensive portfolios only to convince clients to do the same; they continue to do so after they leave the industry.