Financial Advice and Individual Investors' Portfolios

Early Views Volume 11 Issue 1 Volume 10 Issue 2 Issue 1 Volume 9 Issue 2 Issue 1 Volume 8 Issue 2 Issue 1 View More The Role of Structured and Efficient Market Factors in Determining the Individual Investor's Satisfaction: Evidence from Pakistan

“…Therefore, they suffer heavy losses that increase dissatisfaction among them. However, in contrast, in most of the developed countries stock exchanges, the retail investors give importance to the technical analysis and earn handsome profits (Barber, Lee, Liu, & Odean, 2008;Bluethgen, Intschel, Hackethal, & Muller, 2007;Fisher & Gerhardt, 2007;Guiso & Jappelli, 2006).…”

Investment competence and advice seeking

“…In a portfolio-choice experiment, Hung and Yoong (2010) find that individuals with low financial literacy (both self-assessed and measured) choose to take advice more often than others do. Frederick (2005) shows that individuals with lower levels of cognitive skills are more risk-averse, and both Bluethgen et al (2008) and Gerhardt and Hackethal (2009) find that greater risk aversion increases the demand for financial advice. Kramer (2012) finds that banking clients who view themselves as less financially literate than others are more likely to ask for expert financial assistance.…”

“…Another possible reason for a positive relationship between financial sophistication and advice seeking may be the marginal costs of information acquisition and processing. If time spent with an advisor is perceived as a fixed cost, then highly sophisticated investors will face lower marginal costs of information processing than will investors with less sophistication, which will motivate the sophisticated investors to consume more advisory services (Bluethgen et al, 2008).…”

“…Using past portfolio performance as a proxy for financial sophistication, Bluethgen et al (2008) find that wealthier, more sophisticated and more experienced clients are more likely to seek advice. Hackethal et al (2012) confirm the effect of investment experience and wealth on the propensity to seek advice and suggest that the effect could also be related to the higher opportunity costs associated with time among wealthier, more experienced investors.…”

Why Financial Advice Cannot Substitute for Financial Literacy?

“…They are also less prone to hold stocks (van Rooij et al 2011;Arrondel et al 2014), to accumulate wealth (van Rooij et al 2012) and tend to get over-indebted more often than other households (Lusardi and Tufano 2009;Gerardi et al 2010). But financial illiteracy would not be an issue if households could seek for guidance from qualified sources such as bankers or independent financial advisors that can mitigate financial mistakes (Bluethgen and Gintschel 2008).…”