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 Microtechnology industry is hiring – positive developments of past years continue
09.04.2018 | IVAM Fachverband für Mikrotechnik

nachricht RWI/ISL-Container Throughput Index with minor decline on a high overall level
20.03.2018 | RWI – Leibniz-Institut für Wirtschaftsforschung

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: Hygiene at your fingertips with the new CleanHand Network

The Fraunhofer FEP has been involved in developing processes and equipment for cleaning, sterilization, and surface modification for decades. The CleanHand Network for development of systems and technologies to clean surfaces, materials, and objects was established in May 2018 to bundle the expertise of many partnering organizations. As a partner in the CleanHand Network, Fraunhofer FEP will present the Network and current research topics of the Institute in the field of hygiene and cleaning at the parts2clean trade fair, October 23-25, 2018 in Stuttgart, at the booth of the Fraunhofer Cleaning Technology Alliance (Hall 5, Booth C31).

Test reports and studies on the cleanliness of European motorway rest areas, hotel beds, and outdoor pools increasingly appear in the press, especially during...

Im Focus: Scientists present new observations to understand the phase transition in quantum chromodynamics

The building blocks of matter in our universe were formed in the first 10 microseconds of its existence, according to the currently accepted scientific picture. After the Big Bang about 13.7 billion years ago, matter consisted mainly of quarks and gluons, two types of elementary particles whose interactions are governed by quantum chromodynamics (QCD), the theory of strong interaction. In the early universe, these particles moved (nearly) freely in a quark-gluon plasma.

This is a joint press release of University Muenster and Heidelberg as well as the GSI Helmholtzzentrum für Schwerionenforschung in Darmstadt.

Then, in a phase transition, they combined and formed hadrons, among them the building blocks of atomic nuclei, protons and neutrons. In the current issue of...

Im Focus: Patented nanostructure for solar cells: Rough optics, smooth surface

Thin-film solar cells made of crystalline silicon are inexpensive and achieve efficiencies of a good 14 percent. However, they could do even better if their shiny surfaces reflected less light. A team led by Prof. Christiane Becker from the Helmholtz-Zentrum Berlin (HZB) has now patented a sophisticated new solution to this problem.

"It is not enough simply to bring more light into the cell," says Christiane Becker. Such surface structures can even ultimately reduce the efficiency by...

Im Focus: New soft coral species discovered in Panama

A study in the journal Bulletin of Marine Science describes a new, blood-red species of octocoral found in Panama. The species in the genus Thesea was discovered in the threatened low-light reef environment on Hannibal Bank, 60 kilometers off mainland Pacific Panama, by researchers at the Smithsonian Tropical Research Institute in Panama (STRI) and the Centro de Investigación en Ciencias del Mar y Limnología (CIMAR) at the University of Costa Rica.

Scientists established the new species, Thesea dalioi, by comparing its physical traits, such as branch thickness and the bright red colony color, with the...

Im Focus: New devices based on rust could reduce excess heat in computers

Physicists explore long-distance information transmission in antiferromagnetic iron oxide

Scientists have succeeded in observing the first long-distance transfer of information in a magnetic group of materials known as antiferromagnets.

All Focus news of the innovation-report >>>

Anzeige

Anzeige

VideoLinks
Industry & Economy
Event News

"Boston calling": TU Berlin and the Weizenbaum Institute organize a conference in USA

21.09.2018 | Event News

One of the world’s most prominent strategic forums for global health held in Berlin in October 2018

03.09.2018 | Event News

4th Intelligent Materials - European Symposium on Intelligent Materials

27.08.2018 | Event News

 
Latest News

Small modulator for big data

25.09.2018 | Information Technology

NASA's Terra Satellite glares at the 37-mile wide eye of Super Typhoon Trami

25.09.2018 | Earth Sciences

Rice U. study sheds light on -- and through -- 2D materials

25.09.2018 | Materials Sciences

VideoLinks
Science & Research
Overview of more VideoLinks >>>