Don't Answer the Phone - Financial Advice and Individual Investorss Performance

Abstract

We use a proprietary dataset from a large Swiss wholesale bank and examine the impact of fiancial advice on individual investors' trading performance and behavioral biases. Due to the unique structure of our dataset, we can classify each trade as either an advised or an independent trade. This allows us to compare advised and independent trades on a trade-by-trade within-person analysis. Thus, our study is not plagued by the typical selection and endogeneity problem existing studies on the impact of financial advice typically face. We document that advisors hurt trading performance and that this effect is particularly pronounced if the trade follows a client-advisor contact that is initiated by the advisor. There is also only limited evidence that advisors help to reduce behavioral biases, casting serious doubts on the role of financial advisors.