Antibiotics in Financial Advice

Authors: Andreas Hackethal (Goethe University), Annika Weber (Goethe University), Christine Laudenbach (Goethe University), Steffen Meyer (Leibnitz University Hannover)

Title: Antibiotics in Financial Advice

Abstract: We examine detailed minutes on 20,000 advisory sessions at a large German bank and link them to information on client portfolio holdings, security transactions, and the degree to which they make use of financial advice.  Rather passive clients who consult their advisor for all their investment decisions tend to obtain recommendations on actively managed mutual funds from the bank’s standard menu. More independent clients who seek advice only occasionally and proactively approach their advisor with own investment ideas tend to make their advisor deviate from bank standards and agree on products with higher idiosyncratic risk.  Our findings parallel the phenomenon of doctors prescribing antibiotics catering to client requests, even if inappropriate.