A German-Italian study published by the universities of Frankfurt and Naples shows that clients who are using financial advisers are underperforming their peers who are using self-managed accounts. In addition, the study shows that clients using bank advisers are underperforming clients with independent advisers. Main reason for these results being the advisers’ fees and the conflict interest of banks which causes them to trade more often than required. Interesting throughout!
Here is the abstract:
We use two data sets, one from a large brokerage and another from a major bank, to ask: (i) whether financial advisors tend to be matched with poorer, uninformed investors or with richer, experienced but presumably busy investors; (ii) how advised accounts actually perform relative to self-managed accounts; (iii) whether the contribution of independent and bank advisors is similar. We find that advised accounts offer on average lower net returns and inferior risk-return tradeoffs (Sharpe ratios). Trading costs contribute to outcomes, as advised accounts feature higher turnover, consistent with commissions being the main source of advisor income. Results are robust to controlling for investor and local area characteristics. The results apply with stronger force to bank advisors than to independent financial advisors, consistent with greater limitations on bank advisory services.