Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Investors better off without investment advice?

15.06.2011
Researchers at the House of Finance are looking into whether investment advice pays off and found that investors who manage their own portfolios usually do better. However, many private investors also overestimate their own abilities.

A study by researchers at Goethe University in Frankfurt am Main and the University of Naples has yielded surprising results on the use of conventional advisory services for private investors.

Andreas Hackethal, Professor of Finance, and Michael Haliassos, Professor of Macroeconomics und Financial Markets at the House of Finance at Goethe University, conducted an extensive study in which they analyzed investor information from a large German bank, as well as a large online broker with affiliated independent financial consultants. In both cases, they found that the portfolios of investors who made use of advisory services did not develop better than portfolios of comparable investors who did not seek advice.

“The results can be attributed to the fact that consultants do not adequately correct the systematic investment mistakes of their customers and often also create higher costs,” explained Andreas Hackethal. The study discusses the false incentive structure for investment advisors, whose first priority is not the benefit to the customer as the main reason for the findings. It is much more attractive for them to sell investment products for which they can earn commissions. The study shows, for example, that customers restructure their portfolios much more frequently after a consultation – with the corresponding management costs – than customers who manage their own portfolios.

State regulation of investment advisory services does not seem like an adequate solution for the modest investment success of private investors. Another current research paper from the House of Finance also exposes serious problems on the demand side. Many customers steer clear of qualified advisory services and prefer to rely on their own investing skills, which are usually moderate (Bhattacharya et al. 2011). The study shows that 95% of investors do not accept an offer of free unbiased investment advice – the advisor here had no financial incentive in recommending specific products. Only around half of the remaining 5% act on the recommendation of the qualified advisor and by no means completely, even though the recommendations would have consistently led to improved performance.

Regulation that only focuses on the product side of investment advice without taking the problems on the demand side mentioned above into consideration, such as the product information sheets to be introduced in Germany starting in July, could miss the mark. “Study results seem to justify the skepticism as to whether product information sheets bring about the transparency and learning effect desired,” says Andreas Hackethal.

The research also shows which groups of people typically take advantage of investment advisory services. Predominantly older, affluent and experienced investors seek the services of an advisor. “According to our findings, one should not assume that financial advice is directed mainly at inexperienced investors who would therefore be in special need of protection,” says Andreas Hackethal.

The research papers can be downloaded at:

Hackethal, Haliassos, Japelli
– http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1360440
Bhattacharya et al.
– http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1669015

Muriel Büsser | idw
Further information:
http://www.uni-frankfurt.de

More articles from Business and Finance:

nachricht Frugal Innovations: when less is more
19.04.2017 | Fraunhofer-Institut für Arbeitswirtschaft und Organisation IAO

nachricht Europe's microtechnology industry is attuned to growth
10.03.2017 | IVAM Fachverband für Mikrotechnik

All articles from Business and Finance >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Making lightweight construction suitable for series production

More and more automobile companies are focusing on body parts made of carbon fiber reinforced plastics (CFRP). However, manufacturing and repair costs must be further reduced in order to make CFRP more economical in use. Together with the Volkswagen AG and five other partners in the project HolQueSt 3D, the Laser Zentrum Hannover e.V. (LZH) has developed laser processes for the automatic trimming, drilling and repair of three-dimensional components.

Automated manufacturing processes are the basis for ultimately establishing the series production of CFRP components. In the project HolQueSt 3D, the LZH has...

Im Focus: Wonder material? Novel nanotube structure strengthens thin films for flexible electronics

Reflecting the structure of composites found in nature and the ancient world, researchers at the University of Illinois at Urbana-Champaign have synthesized thin carbon nanotube (CNT) textiles that exhibit both high electrical conductivity and a level of toughness that is about fifty times higher than copper films, currently used in electronics.

"The structural robustness of thin metal films has significant importance for the reliable operation of smart skin and flexible electronics including...

Im Focus: Deep inside Galaxy M87

The nearby, giant radio galaxy M87 hosts a supermassive black hole (BH) and is well-known for its bright jet dominating the spectrum over ten orders of magnitude in frequency. Due to its proximity, jet prominence, and the large black hole mass, M87 is the best laboratory for investigating the formation, acceleration, and collimation of relativistic jets. A research team led by Silke Britzen from the Max Planck Institute for Radio Astronomy in Bonn, Germany, has found strong indication for turbulent processes connecting the accretion disk and the jet of that galaxy providing insights into the longstanding problem of the origin of astrophysical jets.

Supermassive black holes form some of the most enigmatic phenomena in astrophysics. Their enormous energy output is supposed to be generated by the...

Im Focus: A Quantum Low Pass for Photons

Physicists in Garching observe novel quantum effect that limits the number of emitted photons.

The probability to find a certain number of photons inside a laser pulse usually corresponds to a classical distribution of independent events, the so-called...

Im Focus: Microprocessors based on a layer of just three atoms

Microprocessors based on atomically thin materials hold the promise of the evolution of traditional processors as well as new applications in the field of flexible electronics. Now, a TU Wien research team led by Thomas Müller has made a breakthrough in this field as part of an ongoing research project.

Two-dimensional materials, or 2D materials for short, are extremely versatile, although – or often more precisely because – they are made up of just one or a...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Fighting drug resistant tuberculosis – InfectoGnostics meets MYCO-NET² partners in Peru

28.04.2017 | Event News

Expert meeting “Health Business Connect” will connect international medical technology companies

20.04.2017 | Event News

Wenn der Computer das Gehirn austrickst

18.04.2017 | Event News

 
Latest News

Wireless power can drive tiny electronic devices in the GI tract

28.04.2017 | Medical Engineering

Ice cave in Transylvania yields window into region's past

28.04.2017 | Earth Sciences

Nose2Brain – Better Therapy for Multiple Sclerosis

28.04.2017 | Life Sciences

VideoLinks
B2B-VideoLinks
More VideoLinks >>>