Financial Advice and Individual Investor Portfolio Performance


  • Marc M. Kramer

    1. Marc M. Kramer is a Researcher in the Department of Economics, Econometrics and Finance, Faculty of Economics & Business, University of Groningen, the Netherlands.
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  • I thank the anonymous referee and Bill Christie (Editor) for the many valuable suggestions, and acknowledge the contributions of Werner de Bondt, Frans Tempelaar, Auke Plantinga, Henk von Eije, and other participants of the conference “Investor Behavior and Stock Market Dynamics” held at the University of Groningen (2007), participants of the EFA Doctoral Tutorial held in Athens (2008), and participants at the EFMA Conference held in Milan (2009) for useful comments regarding previous versions of this paper. I thank the bank for providing the data.


This paper investigates whether financial advisers add value to individual investors’ portfolio decisions by comparing portfolios of advised and self-directed (execution-only) Dutch individual investors. The results indicate significant differences in characteristics and portfolios between these investor groups, but no evidence of differences in risk-adjusted performance. The findings indicate that portfolios of advised investors are better diversified and carry significantly less idiosyncratic risk. In addition, evidence from an analysis of investors who switch to advice taking indicates that these findings (at least in part) reflect the effect of advisory intervention.