File(s) not publicly available

Financial advisor participation rates and low net worth investors

journal contribution
posted on 06.12.2017, 00:00 by Jason WestJason West
This study presents a simple analytical framework to identify the key determinants underlying the incentives for households to engage financial advisors. Using the US 2007 Survey of Consumer Finances we employ a logistic regression approach to understand the characteristics of households who engage financial advisors for investment or comprehensive financial advice. We find that age, education, employment category, income and net worth are highly significant variables related to the propensity to engage a financial advisor. The results also indicate significantly reduced active engagement between advisors and low net worth investors than claimed by the low net worth investors in the survey. We construct a model to derive the expected fee profile of financial advisors as a function of wealth and compare the fee structure against a financial advisor client portfolio. We find that a combination of lower aggregate costs per investor and higher expected fee income motivates advisors to target higher net worth investors. Advisors therefore prefer higher net worth investors due to the lower aggregate costs of engagement which drives low investment participation rates by less wealthy households.

History

Volume

17

Issue

1

Start Page

50

End Page

66

Number of Pages

17

ISSN

1363-0539

Location

United Kingdom

Publisher

Palgrave Macmillan

Language

en-aus

Peer Reviewed

Yes

Open Access

No

Era Eligible

Yes

Journal

Journal of financial services marketing.