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The Gamma Factors and the Value of Financial Advice

Author

Listed:
  • Claude Montmarquette

    (CIRANO and University of Montreal)

  • Nathalie Viennot-Briot

    (CIRANO)

Abstract

This study, based on a new Canadian survey and adjusting for the causality issue, reconfirms the positive value of having financial advice. As in our earlier paper, the discipline imposed by a financial advisor on households' financial behavior and increased savings of advised households are key to improving the value of household assets relative to comparable households without an advisor. Benefitting from a subset of participants in both surveys, we found that dropping an advisor between 2010 and 2014 was costly: households who kept their advisor saw the value of their assets increase by 16.4%, while households who dropped their advisor increased the value by only 1.7%. Thus, the value of financial advice goes largely beyond the traditional alpha and beta factors.

Suggested Citation

  • Claude Montmarquette & Nathalie Viennot-Briot, 2019. "The Gamma Factors and the Value of Financial Advice," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 387-411, May.
    • Handle: RePEc:cuf:journl:y:2019:v:20:i:1:montmarquetteviennot-briot
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    References listed on IDEAS

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    1. Angela A. Hung & Joanne Yoong, 2010. "Asking for Help: Survey And Experimental Evidence on Financial Advice And Behavior Change," Working Papers 714-1, RAND Corporation.
    2. Hackethal, Andreas & Haliassos, Michael & Jappelli, Tullio, 2012. "Financial advisors: A case of babysitters?," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 509-524.
    3. Jeremy Burke & Angela A. Hung & Jack Clift & Steven Garber & Joanne K. Yoong, 2015. "Impacts of Conflicts of Interest in the Financial Services Industry," Working Papers WR-1076, RAND Corporation.
    4. Jeremy Burke & Angela Hung & Jack Clift & Steven Garber & Joanne K. Yoong, 2015. "Impacts of Conflicts of Interest in the Financial Services Industry," Working Papers 1076, RAND Corporation.
    5. Utpal Bhattacharya & Andreas Hackethal & Simon Kaesler & Benjamin Loos & Steffen Meyer, 2012. "Is Unbiased Financial Advice to Retail Investors Sufficient? Answers from a Large Field Study," The Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 975-1032.
    6. Susan E. K. Christoffersen & Richard Evans & David K. Musto, 2013. "What Do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives," Journal of Finance, American Finance Association, vol. 68(1), pages 201-235, February.
    7. Hermansson, Cecilia & Song, Han-Suck, 2016. "Financial advisory services meetings and their impact on saving behavior – A difference-in-difference analysis," Journal of Retailing and Consumer Services, Elsevier, vol. 30(C), pages 131-139.
    8. Angela A. Hung & Joanne K. Yoong, 2010. "Asking for Help Survey And Experimental Evidence on Financial Advice and Behavior Change," Working Papers WR-714-1, RAND Corporation.
    9. Smith, V. Kerry, 1976. "On the Use of Two-Stage Least Squares in Financial Models: A Comment," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 11(3), pages 505-509, September.
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    11. Marc M. Kramer, 2012. "Financial Advice and Individual Investor Portfolio Performance," Financial Management, Financial Management Association International, vol. 41(2), pages 395-428, June.
    12. Claude Montmarquette & Nathalie Viennot-Briot, 2015. "The Value of Financial Advice," Annals of Economics and Finance, Society for AEF, vol. 16(1), pages 69-94, May.
    13. Cathleen Johnson & Claude Montmarquette, 2015. "The lack of loan aversion among Canadian high school students," Canadian Journal of Economics, Canadian Economics Association, vol. 48(2), pages 585-611, May.
    14. Sendhil Mullainathan & Markus Noeth & Antoinette Schoar, 2012. "The Market for Financial Advice: An Audit Study," NBER Working Papers 17929, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Chuck Grace, 2019. "Next-Gen Financial Advice: Digital Innovation and Canada’s Policymakers," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 538, March.
    2. Yuehuan He & Oleksandr Romanko & Alina Sienkiewicz & Robert Seidman & Roy Kwon, 2021. "Cognitive User Interface for Portfolio Optimization," JRFM, MDPI, vol. 14(4), pages 1-15, April.
    3. Bai, Zefeng, 2021. "Does robo-advisory help reduce the likelihood of carrying a credit card debt? Evidence from an instrumental variable approach," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    4. Joanne De Laurentiis, 2019. "Ripe for Reform: Modernizing the Regulation of Financial Advice," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 556, October.

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    More about this item

    Keywords

    The value of advice; Econometric models; Causality issue; Survival principle;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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