Financial Advice and Individual Investor Portfolio Performance

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.