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Financial Advisors and Financial Advice

Paper Session

Sunday, Jan. 6, 2019 1:00 PM - 3:00 PM

Hilton Atlanta, Grand Ballroom A
Hosted By: American Finance Association
  • Chair: John Beshears, Harvard University

Trust and Delegated Investing: A Money Doctors Experiment

Maximilian Germann
University of Mannheim
Benjamin Loos
University of Technology Sydney
Martin Weber
University of Mannheim


Trust is a key ingredient for economic transactions. Gennaioli, Shleifer, and Vishny (2015) propose that trust is particularly important for delegated investing. In short, the more trust investors place in a money manager, the more confident they are to accept and hence benefit from risky investments. This paper tests the key mechanism of this theory in a laboratory experiment. Participants first play a trust game. Participants then act as investors who have to make two separate, delegated investment decisions. Using the amount returned in the trust game as measure of trustworthiness, we show that investors are willing to take substantially more risk when a money manager is more trustworthy, even if this manager charges higher costs. The willingness to take more risk and pay higher costs is increasing in the difference in trustworthiness.

Learning from Coworkers: Peer Effects on Individual Investment Decisions

Paige Ouimet
University of North Carolina
Geoffrey Tate
University of North Carolina


We use unique data on employee decisions in the employee stock purchase plans
(ESPPs) of U.S. public firms to measure the influence of networks on investment
decisions. Comparing only employees within a firm during the same election
window and controlling for a metro area fixed effect, we find that the local
choices of coworkers to participate in the firm’s ESPP exert a significant
influence on employees’ own decisions to participate. Local coworkers’ trading
patterns also disseminate to colleagues through the network. In the cross-section,
we find that some employees (men, younger workers) are particularly susceptible
to peer influence. Generally, we find that more similar employees exert greater
influence on each other’s decisions and, particularly, that high (low) information
employees are most affected by other high (low) information employees.
However, we also find that the presence of high information employees magnifies
the effects of peer networks. We trace a value-increasing investment choice
through employee networks. Thus, our analysis suggests the potential of networks
and targeted investor education to improve financial decision-making.

Who Feels the Nudge? Financial Literacy, Self-Awareness and Retirement Savings Decisions

Anders Anderson
Stockholm School of Economics
David Robinson
Duke University


Using a financial literacy survey of Swedish pension investors matched to actual retirement savings decisions, we argue that respondents can be broken into three groups: those who are financially literate, those who mistakenly believe they are financially literate, and those who know that they are not. We examine how these groups respond differently to informational nudges encouraging them to take charge of their own investments. Investors with mistaken beliefs responded to the nudge, and were more likely to work with mass-market advisors who steer them into high-fee funds. They underperform as a result. By comparison, those who either possess financial literacy or else understand that they do not possess financial literacy were less likely to respond to the nudge. They avoided advisors, stayed with the low-cost default fund, and therefore accumulated retirement savings more quickly.
Alessandro Previtero
Indiana University
Rawley Heimer
Boston College
Yaron Levi
University of Southern California
JEL Classifications
  • G2 - Financial Institutions and Services