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 How Strong Brands Translate into Money
15.11.2016 | Kühne Logistics University - Wissenschaftliche Hochschule für Logistik und Unternehmensführung

nachricht Demographic change depresses tax revenues
04.11.2016 | Fraunhofer-Institut für Angewandte Informationstechnik FIT

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: Shape matters when light meets atom

Mapping the interaction of a single atom with a single photon may inform design of quantum devices

Have you ever wondered how you see the world? Vision is about photons of light, which are packets of energy, interacting with the atoms or molecules in what...

Im Focus: Novel silicon etching technique crafts 3-D gradient refractive index micro-optics

A multi-institutional research collaboration has created a novel approach for fabricating three-dimensional micro-optics through the shape-defined formation of porous silicon (PSi), with broad impacts in integrated optoelectronics, imaging, and photovoltaics.

Working with colleagues at Stanford and The Dow Chemical Company, researchers at the University of Illinois at Urbana-Champaign fabricated 3-D birefringent...

Im Focus: Quantum Particles Form Droplets

In experiments with magnetic atoms conducted at extremely low temperatures, scientists have demonstrated a unique phase of matter: The atoms form a new type of quantum liquid or quantum droplet state. These so called quantum droplets may preserve their form in absence of external confinement because of quantum effects. The joint team of experimental physicists from Innsbruck and theoretical physicists from Hannover report on their findings in the journal Physical Review X.

“Our Quantum droplets are in the gas phase but they still drop like a rock,” explains experimental physicist Francesca Ferlaino when talking about the...

Im Focus: MADMAX: Max Planck Institute for Physics takes up axion research

The Max Planck Institute for Physics (MPP) is opening up a new research field. A workshop from November 21 - 22, 2016 will mark the start of activities for an innovative axion experiment. Axions are still only purely hypothetical particles. Their detection could solve two fundamental problems in particle physics: What dark matter consists of and why it has not yet been possible to directly observe a CP violation for the strong interaction.

The “MADMAX” project is the MPP’s commitment to axion research. Axions are so far only a theoretical prediction and are difficult to detect: on the one hand,...

Im Focus: Molecules change shape when wet

Broadband rotational spectroscopy unravels structural reshaping of isolated molecules in the gas phase to accommodate water

In two recent publications in the Journal of Chemical Physics and in the Journal of Physical Chemistry Letters, researchers around Melanie Schnell from the Max...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

ICTM Conference 2017: Production technology for turbomachine manufacturing of the future

16.11.2016 | Event News

Innovation Day Laser Technology – Laser Additive Manufacturing

01.11.2016 | Event News

#IC2S2: When Social Science meets Computer Science - GESIS will host the IC2S2 conference 2017

14.10.2016 | Event News

 
Latest News

IHP presents the fastest silicon-based transistor in the world

05.12.2016 | Power and Electrical Engineering

InLight study: insights into chemical processes using light

05.12.2016 | Materials Sciences

High-precision magnetic field sensing

05.12.2016 | Power and Electrical Engineering

VideoLinks
B2B-VideoLinks
More VideoLinks >>>