Financial advice for private investors has been criticized to be costly or of low quality. A central concern, highlighted in academic studies and policy debates alike, is that advisors lack a fiduciary obligation to clients and receive commissions that may create agency conflicts.
However, using detailed data on financial advisors and their clients, this paper1 shows that most advisors invest personally just as they advise their clients. Advisors trade frequently, chase returns, prefer expensive mutual 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, as they continue to do so after they leave the industry.
A policy implication of these findings is that improved education or better screening of advisors is more needed than regulation designed to align their interest with their clients.
1Linnainmaa, Melzer & Previtero, “The Misguided Beliefs of Financial Advisors”, SSRN working paper, no. 3101426, 2017.
Robeco Institutional Asset Management B.V. (Dubai office) is regulated by the Dubai Financial Services Authority (“DFSA”) and only deals with Professional Clients and does not deal with Retail Clients as defined by the DFSA.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.