US study: Bad advice with independent financial advisors
Anyone seeking advice on investing money relies more on an independent advisor than on a bank employee – after all, the latter are responsible for marketing the bank’s own products. Scientists from the USA have found in a study that this is not always a good decision. This is because independent advisors often make the same mistakes when investing money as lay people.
The study, which was published in May 2018, refers to the Canadian market. The three scientists from the USC Marshall School of Business, Indiana University and the Federal Reserve Bank of Chicago analyzed the investments of around 500,000 private investors for a period of four years. The private investors were supported in their investments by a total of 4,400 independent financial advisors.
Yield with advice = Yield of laymen
The researchers found that private investors made the same mistakes in their investment decisions as other lay investors – even though the investors surveyed received professional and independent advice. They did not spread the risk strongly enough, did not keep the products in their portfolios long enough and preferred to invest in actively managed funds. These are more expensive than passively managed funds. The portfolios yielded correspondingly low returns.
Whether you invest 20,000 euros, 30,000 euros or 50,000 euros: It is not necessarily conducive to a return on investment to call in an independent investment advisor. The study confirms what many Germans had assumed in a survey anyway.
Survey confirms reservations of German investors
As early as 2016, a survey conducted by quirin bank, YouGov Germany and YouGov USA showed that 60% of respondents in Germany had a “fundamental distrust of advisors who recommend investments”. In the USA, it was only 23% of the respondents. Moreover, half of Germans think that no investment advisor can be better than the market in the long run. In the USA, only one in three respondents thinks so.
Investment advisors invest their own money unfavourably
In addition, the researchers examined the private custody accounts of three-quarters of the advisors. It turned out that the advisers did the same with their own investments as they did with their clients’ money. In their private portfolio, they showed the same risk appetite, the same tendency towards expensive investments and too little risk diversification. Their returns were also low.
German fee consultants receive no commission
The researchers also investigated how the consultants invested their money at the end of their career. They wanted to know if they were only buying expensive products to convince their clients. But even the former consultants preferred to invest their money in expensive investment products.
Important difference to German market
The Canadian advisors whose securities accounts were examined were independent of banks. However, they received commissions from the fund providers. In Germany, independent fee consultants are paid directly by their clients and are not dependent on commissions. They need a licence and are supervised by the competent authorities.