Bank Advisors Research Articles

Calm Advice: How Digitalizing Pen-and-Paper Practices Improves Financial Advice-Giving

AbstractBank clients’ expectations for enhanced service experiences have increased with the digitalization of banking services and the rise of FinTech. However, despite the availability of online banking services, many clients still prefer personal financial advice due to the personal interaction involved. There has been a growing interest in IT-supported advisory services to meet this demand, aiming to improve customer experience and reduce the cognitive burden on advisors. While previous studies have shown the positive effects of advisory-support systems, they also highlighted downsides such as unnatural interactions, technology’s domination of the interaction space, and impaired impression management. This paper investigates the potential of pen-and-paper user interfaces to resolve the relationship/decision-making tension in advisory services. It evaluates the design of an artifact called bankNotes with eight bank advisors and 24 clients in a within-subject study by drawing on a rich data set consisting of interviews, surveys, and video analysis of the encounters. The results indicate that bankNotes was well-received by advisors, who embraced both existing pen-and-paper practices and new practices facilitated by the system. The clients also benefitted from the system: using bankNotes improved customer orientation, shared understanding, and overall service quality. This research provides valuable insights into the design of advisory support systems that prioritize customer satisfaction and support the needs of both advisors and clients in the banking sector.

Specifying and validating overconfidence bias among retail investors: a formative index

PurposeThe study explored various dimensions of overconfidence bias (OB) among retail investors in Indian financial markets. Further, these dimensions were validated through formative assessments for OB.Design/methodology/approachThe study applied exploratory factor analysis (EFA) to 764 respondents to explore dimensions of OB. These were validated with formative assessments on 489 respondents by the partial least square path modeling (PLS-PM) approach in SmartPLS 4.0 software.FindingsThe major findings of EFA explored four dimensions for OB, i.e. accuracy, perceived control, positive illusions and past investment success. The formative assessments revealed that positive illusions followed by past investment success among retail investors played an instrumental role in orchestrating the OBs that affect investment decisions in financial markets.Practical implicationsThe formative index of OB has several practical implications for registered financial and investment advisors, bank advisors, business media companies and portfolio managers, besides individual investors in the domain of behavioral finance.Originality/valueThis research provides a novel approach to provide a formative index of OB with four dimensions. This formative index can acts as an overview for upcoming researchers to investigate the OB of retail individual investors.Highlights Overconfidence bias is an important predictor of retail investors' behaviorFormative dimensions of the overconfidence bias index.Accuracy, perceived control, positive illusions and past investment success are important dimensions of overconfidence bias.Modern portfolio theory and illusion of control theory support this study.

Poverty and seeking bank advice: Evidence from a survey experiment

Access to banking services for the poorest individuals is key to reducing their vulnerability, but are poor people likely to seek help from bank advisors? This study tests the hypothesis that poor peoples’ financial concerns affect their willingness to seek professional financial advice from banks. A survey experiment is run by performing “hard priming” (a €2000 car repair expense) on a treatment group and “soft priming” (a €200 expense) on a control group. Overall, hard priming triggers higher positive intention to consult a bank advisor. However, poverty sharply and negatively moderates this effect. For respondents below the poverty line, the priming effect is close to significantly negative and becomes such when restricting the sample to individuals who responded before their payday rather than after it. Hard priming also decreases poor people’s self-reported trust in banks, and this variable mediates the negative effect on intention to consult a bank advisor. There is no evidence that a lack of financial literacy or actual financial distress influence the priming effects.

Basic debt literacy and debt behavior

Using unique survey data from 1001 individuals representative of the French population, we document that less than half of the sample (47%) can provide correct answers to two basic questions addressing the functioning of debt interests. This proportion is higher among credit users, but the improvement emerges mainly from mortgagors (55%) and much less from consumer credit users (51%). Furthermore, among consumer credit users, the portion of respondents giving at least one erroneous answer (i.e. neither correct nor “don't know”) is above one third and significantly higher than in the rest of the population (35% vs. 30%). Next, with regressions, controlling for a wide array of socio-demographic variables and potential confounding factors like present-biased preferences or saving-oriented literacy, we show that incorrect answers to debt literacy questions predict a greater propensity to use consumer debt and to use it in a more expensive way (i.e. choosing lower settlements). Lastly, we find that respondents who answer debt literacy questions incorrectly are not more likely to report intention to take financial education training or to seek financial advice from a bank advisor, even when such respondents also present a high propensity to use debt or to use it in an expensive way.

Future Role of Bank Advisors and Traditional Bank Branches in the Age of Digitalization—An Empirical Investigation

Due to increasing digitalization, the German banking sector is undergoing a massive period of change. This threatening challenge is massively influenced by demographic change, supervision and regulation, the low-interest phase and technological progress. In the last twenty years, mergers of regional banks, staff reduction measures and the closure of their traditional bank branches have been the order of the day. Banks in Germany are therefore forced to deal with the introduction of omni-channel concepts. The aim of the research is to make a statement on the extent to which the two distribution channels “bank advisor” and “traditional bank branch” will still play an active role for regional banks in Germany in the future. The results of standardized interviews with bank experts (N = 43) in Germany form the core of this study. This paper summarizes the findings of the quantitative research descriptively. Furthermore, the article critically examines the academic discussion on the digital transformation of banks in Germany, especially savings and cooperative banks. This article is structured as follows: Introduction, Literature Review, Methodology, Results and Discussion, Conclusions, Limits and Directions for further Research. The results of this article can be useful for researchers and bank practitioners to identify and utilize the strategic change potential under omni-channel aspects due to the digital transformation.

Does the market value M&A risk factor disclosures? Evidence from the involvement of investment bank advisors

AbstractThis paper investigates whether the market values risk factor disclosures in the context of mergers and acquisitions (M&A) and how the involvement of top‐tier investment banks affects the association. We complement previous research on risk factor disclosures by suggesting that the inter‐organizational relationship between companies and investment banks they hired in M&A transactions affects investors’ perceptions of M&A risk factor disclosures. Specifically, we find that while M&A risk factor disclosures are positively related to the firms’ market value, the involvement of a reputable investment bank advisor negatively moderates this relationship. Our research demonstrates that M&A risk factor disclosures are informative and the investment bank advisor as an intermediary would affect investors’ perception of the acquirer's risk factor disclosures. The study provides implications for regulatory policies relating to risk disclosures, which should be of interest to regulators, investors, and managers.

Dylematy etyczne pracownika banku detalicznego na podstawie hipotetycznego studium przypadku

The article presents an augmented version of the submission for the final stage of the 4th edition of the CFA Ethics Challenge (2021). It comprises descriptions of events taking place during the first week on the job of a new bank advisor and assessments of these events taking into account CFA standards and Code of Banking Ethics. The authors analyze situations in which bank employees have found themselves, identify breaches of ethical standards and propose general recommendations for improvement, including for example an ethics survey of credit institutions’ employees. The presented material can be particularly useful for ethics training and for in-depth case studies analysis.

Sprawa Etyczna. Opracowanie hipotetycznego studium przypadku CFA The Ethics Challenge edycja 2021

The article presents an analysis of the ethical issues identified in a case study involving a description of events during the first week of work of a new bank advisor in a hypothetical bank (New Bank). The analysis was created for the final stage of the 4th edition of CFA Ethics Challenge (2021). Basing on the model of the fraud triangle, three groups of reprehensible behaviours and actions were identified with appropriate solutions. The article also presents recommendations for the improvement of ethics in New Bank and focuses on aspects deemed crucial.

Trust-formation processes in financial advisors: A structural equation model

This paper focuses on the investor-advisor relation, looking at financial advisory as a fiduciary service. Consistently with the economic literature on the Trust Game, we formalize trust between financial advisors and clients as driven by a combination of two traditional motives – a norm to trust and anticipated reciprocation. We use related literature and insights from the recently introduced European Markets in Financial Instruments Directive 2 (MiFID 2) to define an original survey to estimate a structural equation model of trust formation, where trust and its two main motives are described as latent variables. Besides this methodological contribution, we test the validity of the hypothesized structural relation and explore whether specific features of financial advisors are likely to lead to different trust-formation processes. We find that the professional framing (tied versus bank advisors) and the maturity (new entrants versus incumbents) of financial advisors do indeed support different trust-formation processes. We conclude by exploring how these processes may be differently affected by the new regulation and discussing implications for the financial advisory industry.

The performance generating limitations of the relationship-banking model in the digital era – effects of customers' trust, satisfaction, and loyalty on client-level performance

PurposeThis paper investigates the viability of the relationship-oriented business model. Specifically, it examines the effects of bank customers' satisfaction, loyalty, and trust in bank advisors on two client-level performance measures; client-level non-interest revenue, and client-level revenue on net interest spread. It further investigates how effects are moderated by differences in clients' risk tolerance and financial literacy.Design/methodology/approachThe findings are based on analyses of a data set that combines survey data (collected from 13,525 bank clients in 2013) with bank record data from each respondent. The cross sectional data is analyzed using OLS-regression and structural equation modeling.FindingsOverall, the findings are that the relationship banking model generates non-interest revenue, but not revenue on net interest spread. In more detail, findings show that trust has a positive direct effect on client-level non-interest revenue. Furthermore, trust mediates the entire effect of satisfaction and loyalty on client-level non-interest revenue. Customer satisfaction and loyalty do not lead to enhanced client-level non-interest revenue if there is little trust in bank advisors. Findings further show that the relevance of trust for non-interest revenue is higher for clients with high risk tolerance and high financial literacy. Satisfaction, loyalty, and trust have no effect, however, on client-level revenue on net interest spread.Originality/valueWhile previous literature mainly has used subjective intentions (e.g., repurchase behavior) as operationalization of performance, this paper combines subjective survey data and objective performance data, allowing the investigation of how the customer relationship model affects actual performance. Furthermore, the paper investigates the relational banking model's effect on non-interest and net interest spread revenue, and we show that the relational banking model generates only non-interest revenue, and not net interest spread revenue. The fine-grained client-level data also allows the investigation on how the effect of trust on client-level performance differs among client groups with different cognitive characteristics (i.e., risk tolerance and financial literacy).

Pre-announcement merger trading by investment bank-affiliated mutual funds

PurposeThis study examines whether mutual funds buy or sell the stock of merger targets advised by their investment bank affiliates in advance of merger announcements and withdrawals. Existing literature finds mixed evidence on whether financial conglomerates act on conflicts of interest across divisions.Design/methodology/approachAffiliations between investment banks and mutual funds are identified, and the incidence and characteristics of mergers where funds trade the stock of targets advised by affiliates are examined.FindingsMutual funds buy or increase holdings of merger targets advised by their investment bank affiliate in advance of merger announcements, capturing highly positive abnormal returns. Mergers with this pre-announcement trading by affiliates are more likely to be completed successfully. Furthermore, mutual funds are more likely to liquidate holdings of a target in advance of a merger withdrawal if the fund is affiliated with the target's investment bank advisor, thus avoiding negative abnormal returns surrounding merger withdrawals. Results are robust after controlling for potential sample selection bias.Originality/valueThese findings contribute to the literature on affiliations between investment banking and mutual fund management, M&A outcomes, and to the discussion of potential conflicts of interest within banks. Also, this study is the first to examine trading activities by mutual funds affiliated with merger investment bank advisors during value-sensitive periods beyond the pre-announcement phase, such as the time period leading up to merger withdrawals.

Temporarily vulnerable consumers in a bank services setting

PurposeThe purpose of this paper is to explore how temporarily vulnerable customers and their bank advisors cope with incidents that occur over the course of their service relationships.Design/methodology/approachA qualitative design based on ten case studies, involving interviews with both sides of the dyad (client–bank advisor) and internal secondary data from the bank, was conducted.FindingsThe findings show that the two sides of the dyad span a gradation of coping strategies that are enacted to solve the incidents encountered. Thus, temporarily vulnerable consumers turn out to be non-passive in their asymmetrical relationship with advisors and deploy residual resources to co-create solutions.Research limitations/implicationsThe results enrich the knowledge of consumers’ vulnerability insofar as the authors extend the transformative service literature to temporarily vulnerable clients who project themselves beyond the crisis period and consider ensuring satisfactory levels of their well-being.Practical implicationsThe findings suggest that banks can refine their categorization of vulnerable clients by identifying those that remain profitable and for which an effort is worth making, and those in whom it is appropriate to disinvest. They also prompt banks to design supports for the advisors in managing increased stressful interactions with precarious customers.Social implicationsTo prevent the risk of slippage by or exclusion of, vulnerable customers who experience serious banking incidents, the paper points out the necessity to mobilize alternative levers from the public and associative spheres to allow these customers access to a minimum of banking services.Originality/valueAs an early exploration of transient vulnerable clients, this research fuels the understanding of their capacity to consider co-creating, alongside bank advisors, solutions to the incidents encountered with a view to preserving their well-being and ensuring their social and economic inclusion.

The influence of customer characteristics on frontline employees’ customer need knowledge

PurposeThis paper aims to investigate the influence of individual customer characteristics on frontline employees’ (FLEs) customer need knowledge (CNK), a construct that objectively measures FLEs’ ability to accurately identify a given customer’s hierarchy of needs.Design/methodology/approachThe study uses hierarchical data involving the customer and bank advisor levels in the banking sector of three European countries. The matched sample consisted of 1,166 customers and 332 employees. To account for the nested structure of the data, the study used hierarchical linear modeling (HLM) using HLM software.FindingsThe results show that customers’ financial experience and risk aversion positively influence CNK and customer-perceived responsibility for the service outcome negatively impacts CNK. The results further show the impact of individual customer cultural values on CNK, which can be influenced by customer-oriented employee training. Cross-level interaction effects indicate that training measures can reverse negative influences of customers’ high power distance and uncertainty avoidance on CNK, whereas for customers characterized by high long-term orientations, training measures can backfire.Originality/valueThis study contributes to research on the antecedents of FLEs’ CNK by examining the currently overlooked influence of individual customer characteristics that are pertinent to the employee–customer interaction process. The study reveals customer characteristics as a new area of antecedents influencing FLEs’ accurate perceptions of customer needs.

How relationship attributes affect bank customers’ saving

PurposeThe purpose of this paper is to determine how three relational attributes – duration, context and trust – are subjectively perceived by bank customers, and how these affect their saving behavior, as defined by monthly flows to mutual funds and the financial products bought and held in stock.Design/methodology/approachThe authors use a combination of unique bank register and subjective survey data, and a structural equation model for theory development. Four constructs are developed to estimate the structural model, i.e. saving behavior, duration, context and trust.FindingsThe authors find that all three relational attributes have positive effects on saving behavior. The authors also find that duration and context have the largest total effects, and that trust is a mediating variable channeling indirect effects from context and duration to saving behavior.Practical implicationsOne implication for bank managers is that it takes time and understanding of customer context to gain customer trust, but that this increases customer savings. Another implication is that the authors confirm that relational attributes can be studied using subjective measures in surveys, and that these have an effect on objective savings behavior. The findings provide an understanding that could develop both the customer’s value and the banks’ business opportunities.Originality/valueThe impact of relationships between bank advisors and their customers in terms of costs and benefits has been studied, but a little research has focused on the attributes of the relationship and how these affect customers’ saving behavior. The study also uses unique objective bank register data, combined with customers’ subjective perceptions of the relationship.

Why Do You Trust Me? A Structural Equation Model of Trustworthiness in Financial Advisory

The paper provides a comprehensive model of trust formation in financial advisory using a dataset of 1,184 Italian advisors that differ across some specific characteristics (bank advisors or tied agents, market maturity of the bank/institution they work for, classified as new player or incumbent). The goal is twofold: on one side, we aim at demonstrating the validity of a trust-formation model that explicitly accounts for both a professional and a relational component; on the other, we wish to investigate whether different types of financial advisory induce different trust formation processes. The latter goal is of particular relevance with respect to the introduction of the MiFiD II Directive, as different trust formation processes may rely on features that are differentially affected by the regulatory changes. Through the estimation of a structural equation model, we are able to prove both its validity and the differential impact of the two dimensions in the trust-formation process. In particular, we find that the novelties introduced by the legislator, favouring the anticipated reciprocation dimension, could help increasing competition in the advisory industry. In fact, this dimension is the one that plays a fundamental role for the advisors of new entrant institutions and that could help support their accreditation in the market.

Ladders to m-commerce resistance: A qualitative means-end approach

Although mobile commerce is predicted to be the next megatrend with steadily increasing buyer rates, some industries are struggling to adopt this trend and face strong consumer resistance. This particularly concerns complex, service based products such as insurance. The long sales tradition in this area, with a network of agents, brokers and bank advisors, has caused a perceived divergence between the characteristics of the established and the emerging channels. This article aims to identify the sources of resistance to mobile insurance by uncovering the relationship between the values of consumers and the conflicting attributes of the mobile channel. Therefore, insurance consumers with existing knowledge about mobile insurance, but inherent resistance were interviewed. A laddering interviewing technique was used to retrieve chains of attribute, consequence and value relations. This provides a profound understanding of the consumers' cognitions by mapping and structuring the sources of resistance. The results mainly highlight an insufficiency of the service, and system components as key barriers to adoption. Theoretical and practical implications are discussed.

Intellectual Capital and Banks' Credit Assessments of SMEs: Evidence from Denmark and Germany

In this paper, we analyse how Danish and German banks consider the intellectual capital (IC) of small- and medium-sized enterprises (SMEs) in their creditworthiness assessment processes. We did case studies in 12 Danish and German banks and conducted interviews with bank advisors and analysts. The results show that banks consider IC factors in their creditworthiness assessments, whereas top management quality and relationships to customers are included in the banks' ratings, other IC factors are considered in the qualitative creditworthiness assessments. Otherwise, credit ratings of SMEs mainly focus on financial information. Our research is limited by the number of interviewed banks and the concentration on creditworthiness assessments of SMEs. The paper reveals weaknesses concerning the integration of IC factors in credit decision processes of banks. In addition, SMEs receive information about relevant IC factors when applying for a loan.

Determinants of Net Interest Margin in the Ethiopian Banking Industry

Determinants of Net Interest Margin (NIM) of commercial banks vary from economy to economy due to variation in country, industry and firm specific factors. This study aims to assess and identify the determinants of NIM in the Ethiopian banking industry. It mainly used unbalanced panel data collected from annual reports commercial banks and the National Bank of Ethiopia for the period 1997 to 2014. Specific macroeconomic data such as Real GDP and Inflation were collected from annual reports of Ministry of Finance and Economic Development. In addition, expert opinions are obtained from officials operating in both private and public banks and used to examine the effects of changes in internal and external factors on the performance of banks. Fixed Effect unbalanced panal data model is used for data analysis. The findings of the study indicated that cost efficiency, implicit interest payment, competition and scale efficiency consistently have positive and significant effects on NIM. On the other hand, liquidity risk and management efficiency has negative and significant effect on NIM. However, macroeconomic variables like inflation and gross domestic product do not seem to have significant effect on NIM. From this finding it is possible to conclude that both bank specific and industry factors are indispensable determinants of commercial banks’ performance in Ethiopia. This, in turn, shows that operational efficiency and business growth are important areas of emphasis to register optimal return. Thus, bank executives, bank advisors and the monetary authority of Ethiopia need to focus on these two pillars performance to ensure optimal NIM in banks.

Working with standards—post‐crisis positioning of bank advisors

Taking recent developments in the financial sector as its point of departure, this article examines how bank advisors are positioned. Increased complexity in banking products and the risk orientation that has followed the financial crisis make demands on the quality of advice. Drawing on qualitative interview studies in two Danish banks, the article questions whether the dominant understanding of bank advisors as primarily sales persons comprises their current positioning. Contradictory demands on bank advisors emerge in the simultaneous emphasis on advisory aspects of the work and in the imposition of new standard procedures; while one points to a positioning as professional advisors, the other tends to undermine it and makes the positioning ambiguous.

Prior Client Performance and the Choice of Investment Bank Advisors in Corporate Acquisitions

Contrary to earlier studies, we find that prior client performance is a significant determinant of the likelihood that an investment bank will be chosen as the advisor by future acquirers and of the changes through time in banks' shares of the advisory business. Further, the changes in the market values of acquirers at the announcement of acquisition attempts are positively correlated with contemporaneous changes in the market values of their advisors. Two implications arise: (1) acquirers consider advisors' prior client performance when choosing their advisors and (2) market forces work to align advisors' and clients' interests in the acquisition market.