Tag Archives | investment advice

Pofessional Investment Advice

CXO Advisory Group does an excellent job in reporting on, and discussing a variety of research topics within the investing arena.

Here is an excellent example of how individual investors (individual clients of a large European broker) responded to an offer of free, unbiased investment advice (personalized written
and verbal)

For more details see the original post.


The offer was made by email, with
telephone calls to anyone who did not respond.

The response study found that:

  • Only 5% of the 8,195 clients accept the offer

  • Those accepting tend to be male,
    older, wealthier, financially more sophisticated, and have a longer relationship with the

  • Among accepted offers, if implemented, the free advice would have improved client investment performance.  This free advice was a bargain

  • However,  very few clients who accept the offer actually follow the
    advice. Those who do, tend to follow have higher account values than
    those who do not.

Conclusion: Evidence suggests that individual investors,
especially those apparently most in need, tend to ignore expert advice.

There's not much to say from a single study.  Yet, it rings true.  The vast majority don't want advice or don't know whether to trust the advice. 

When so few people accepted the offer, it's difficult to know how valid the conclusions are.  Yet, I would love to know why these were the results:  I can see alternatives:

a) The novice wants to make trades.  In other words, to get out and play.  He/she wants action.

b) The uninformed novice is willing to pay for advice.  No statistics, but the fact that many costly newsletters, with poor track records, continue to stay in business musts get their customers from somewhere.  The ill-informed novice is the most likely customer. 

There are higher quality newsletters, and they survive by having a good track record and having subscribers renew.

Is it simply that 'free' advice cannot be trusted?

b) The wealthier, older, less-emotional person knows that the bottom line is the money earned.  There is no ego gratification required, and thus, earning money is more important than making the trades oneself.

Trusting the broker, this investor also trusts the free advice.


After finalizing this post last night (Wed), I found a new post by Felix Salmon, in which he describes a Charles Schwab survey. The survey results are lengthy.  For a quick summary, see Salmon's blog.

"People want investment advice when it comes to their 401(k) plans,
especially if they can get it for free.

And when they take investment
advice, they change their savings habits significantly [by saving more money].

But it turns out
that even when companies do provide free investment advice for their
employees, the employees don’t take it."

The findings of the two studies are similar.  Free advice is worth hearing, but few use it. 



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