Trust in Financial Institutions and Demand for Financial Advice

Abstract

This article examines the effect of financial trust on the demand for financial advice in Singapore. Using a general population sample, we study how consumers’ trust in financial institutions impacts both their advice-seeking and advice-adopting behaviors. Only 4 in 10 respondents state that they usually seek (or adopt) advice from a financial advisor before investing their savings. We find that financial trust is a strong predictor of both behavioral outcomes, even after accounting for endogeneity and a number of covariates. Furthermore, the estimated effect of financial trust on adopt advice is larger than that on seek advice. These results are robust to variations in empirical specifications. Results also reveal that education is positively associated with the demand for financial advice, while ethnic minorities are less inclined to seek or adopt professional advice. Our findings underscore the importance of enhancing consumers’ trust in financial institutions as a means to further develop the financial services sector and financial advice markets.