scholarly journals Regulating household financial advice

2012 ◽  
Vol 1 (3) ◽  
pp. 50-54 ◽  
Author(s):  
Benjamin Cummings ◽  
Michael Finke
Keyword(s):  
Economic Theory ◽  
Financial Advisors ◽  
Financial Advice ◽  
Investment Advice

This paper reviews economic theory related to investment advice. This theory explains 1) why financial advisors need to be carefully regulated for the benefit of both the investment advice industry and for consumers, 2) why principles-based regulation (e.g., a fiduciary standard) is more efficient than rules-based regulation, 3) why dual regulation of financial professionals providing investment or insurance advice is inefficient and inequitable policy, and 4) why the application of a universal and uniform fiduciary standard will be difficult to implement

Part II Investment Firms and Investment Services, 6 Independent Financial Advice

2017 ◽  
Author(s):  
Giudici Paolo
Keyword(s):  
Financial Markets ◽  
Economic System ◽  
Portfolio Management ◽  
Financial Advisors ◽  
Financial Advice ◽  
Suitability Assessment ◽  
Governance Regime ◽  
Personal Recommendation ◽  
Investment Advice

The quickest policy indication for increasing households’ trust in financial markets, to the benefit of the economic system, seems to be the offer of professional financial advice on affordable terms. The problem is how to convince investors to pay for advice, and how to protect investors who do not want to pay for advice from conflicted advice and from hard sell under the guise of personal recommendation—an area where MiFID I has not performed well. MiFID II’s answer is to pose a new set of information duties on financial advisors with the clear intention of nudging investors towards independent, fee-only advice. The intention is good. However, the new regime raises many important issues, including the ambiguity of the ‘independent’ suit, the interaction between the product governance regime and the suitability assessment, the regulatory inconsistency that it is emerging between investment advice and portfolio management, and the potential costs of the written statement of suitability.

Whom to Trust for Financial Advice?

2015 ◽  
pp. 175-207
Author(s):  
Simon Pickert ◽  
Philipp Sandner
Keyword(s):  
Computational Linguistics ◽  
Financial Assets ◽  
Message Content ◽  
User Characteristics ◽  
Online Platform ◽  
Financial Advice ◽  
Behavior Based ◽  
Investment Advice

Twitter has become a popular online platform for individuals seeking news and advice about financial assets. In this study, we examine which user characteristics relate to the quality of investment advice. Due to the fact that Twitter allows users to anonymously create and share content, a large portion of the information and investment advice found on its channels turns out to be non-useful, misleading or even incorrect. Using methods from computational linguistics to analyze roughly 9 million tweets, our findings show that a set of behavior-based user features, as well as characteristics of the message content relate to the quality of proffered investment advice.

scholarly journals Robo-advisors as Automated Personal Financial Planners – SWOT Analysis

2020 ◽  
Vol 3 (27) ◽  
pp. 155-173
Author(s):  
Krzysztof Waliszewski ◽  
Marta Zięba-Szklarska
Keyword(s):  
Swot Analysis ◽  
Current Strength ◽  
Small Scale ◽  
Financial Advisors ◽  
Market Penetration ◽  
New Approach ◽  
Reducing Costs ◽  
Investment Advice ◽  
Personal Financial Planning ◽  
Method Analysis

Automatic financial consulting (robo-advice) is a financial innovation in the area of personal financial planning, and in particular investment consulting classified as fin-tech (financial technology). The main disadvantage of traditional investment advice is limited availability due to the required amount of assets and high management costs. These disadvantages are answered by robo-advice, using artificial intelligence and algorithms without the participation of a physical adviser, thereby reducing or abolishing minimal assets and reducing costs [Kocianski 2016]. The purpose of the article is to analyze strengths and weaknesses as well as opportunities and threats of robo-advisors, especially when compared to traditional financial advisors. This paper is an analysis of a history, regulations, application, functionality and development of Robo-Advice. The concept of Robo-Advice was critically analysed, with presentation of current strength and weaknesses, as well as opportunities and threats. We aimed showing that Robo-Advice should be innovative, feature a new approach, and should transform the current financial consulting. There are still, however, many opportunities and challenges in this field, which await discovering. The article uses the SWOT analysis method, analysis of the literature and reports. As indicated by the analysis, robo-advisors are not a threat to traditional financial advisors, but their complement, which makes the hybrid model connecting a physical advisor assisted by technological solutions (robo-advisors) most likely. This thesis is also confirmed by the small scale of robo-advisors’ activity compared to traditional advisors measured by the market penetration rate (in 2023 about 2% assets under management).

The Emergence of the Robo-Advisor

2019 ◽  
pp. 13-37 ◽  
Author(s):  
Jill E. Fisch ◽  
Marion Labouré ◽  
John A. Turner
Keyword(s):  
Human Services ◽  
Cost Savings ◽  
Financial Advisors ◽  
Computer Algorithms ◽  
Online Services ◽  
Financial Advice ◽  
Human Contact ◽  
Investment Portfolios

Robo-advisors are online services that use computer algorithms to provide financial advice and manage customers’ investment portfolios. This chapter describes the development of the robo-advisor industry and compares robo-advisors to traditional human financial advisors. Robo-advisors emerged in response to people’s need for financial advice and the high cost of obtaining that advice from human advisors. Pure robo-advisors, which offer no direct human contact, are generally substantially less expensive than human advisors, and the use of computer algorithms allows for an increasing degree of personalization of the advice. Nevertheless, robo-advisors do not provide customers with all of the services offered by human advisors and, in particular, human contact. In response, some firms are offering hybrid robo/human services that combine cost savings from a robo-advisor with some human input.

scholarly journals Shaped by the Rules. How Inducement Regulation Will Change the Investment Service Industry

2021 ◽  
Vol 18 (4) ◽  
pp. 640-668
Author(s):  
Enrico Rino Restelli
Keyword(s):  
Financial Services ◽  
Service Industry ◽  
Low Cost ◽  
Investor Protection ◽  
Financial Advisors ◽  
Early Assessment ◽  
Self Assessment ◽  
Protection Goals ◽  
Investment Advice ◽  
European Regulator

Abstract Inducement regulation is intended to target the conflict of interests between financial advisors and their clients. Nonetheless, it may also represent a ‘public policy device’ meant to conform the activity of European distributors with investor protection goals; indeed, by selecting the conditions under which distributors can freely collect inducements, the European regulator simultaneously shapes the market for financial services. Accordingly, ‘spot advice’ (which poorly performed in the past) is indirectly banned by the quality-enhancement provision set forth in art. 24 MiFID II, and the acknowledged importance of on-going monitoring of the portfolio opens up the collection of inducements linked to the provision of ‘periodic advice’. Since this new regime will probably increase the overall costs of investment advice enlarging the ‘advice gap’, the European regulator tries also to foster the development of FinTech permitting the collection of inducements even outside the strict provision of investment advice. Nevertheless, the concerns regarding investor protection raised by FinTech services (which allow only a mere ‘self-assessment’ of the investor’s profile) suggest a broader interpretation of inducement regulation, with the purpose of enabling investment firms to provide low-cost financial advice capable of effectively encompassing every stage of the investment relationship, from the early assessment of clients’ characteristics and objectives to the on-going management of the investments (‘simplified advice’).

Financial Advisory Services

2017 ◽  
Author(s):  
Jeroen Nieboer ◽  
Paul Dolan ◽  
Ivo Vlaev
Keyword(s):  
Behavioral Science ◽  
Expert Advice ◽  
Financial Advisors ◽  
Financial Return ◽  
Financial Advice ◽  
Advisory Services ◽  
Behavioral Needs ◽  
Financial Interests ◽  
Service Offering

Evidence from the behavioral sciences, notably economics and psychology, has profoundly changed the way policymakers and practitioners present expert advice to consumers. This chapter examines the behavioral science evidence on financial advice and explores its implications for the financial advisory profession. It explains how consumers of retail financial advice respond to certain aspects of the advice in predictable ways, sometimes exhibiting behavioral biases or following certain conventions in their decision making. By recognizing and anticipating these responses, financial advisors can offer a more complete service, offering benefits beyond the strictly financial return. But the behavioral needs of consumers may also provide advisors with incentives that are not strictly aligned with their clients’ financial interests. Finally, the increasing role of technology will play an important role in shaping the financial advisory services of the future.

Personal Financial Planning.

1985 ◽  
Vol 28 ◽  
pp. 184-185
Author(s):  
R. J. Chapman
Keyword(s):  
Financial Planning ◽  
Comprehensive Planning ◽  
Strong Base ◽  
Financial Advice ◽  
Life Assurance ◽  
Investment Advice ◽  
Trust Law ◽  
Personal Financial Planning ◽  
Made In

The paper explains how Personal Financial Planning (PFP) covers all aspects of financial advice for individuals, with emphasis on pensions, life assurance, tax and investment. Advice may be confined to one of these subjects, but in its widest sense PFP extends to the process whereby an individual's financial affairs are looked at as a whole before comprehensive planning recommendations are made in accordance with his or her objectives. The training of actuaries specifically covers the subjects of pensions, life assurance and investment. It also provides a working knowledge of trust law and tax. A familiarity with financial projections, an understanding of the effects of inflation and the ability to use computers provide actuaries with a further strong base for giving PFP advice.

scholarly journals Does the principle of investment diversification apply to the starting pitching staffs of major league baseball teams?

PLoS ONE ◽  
2021 ◽  
Vol 16 (1) ◽  
pp. e0244941
Author(s):  
Paul J. Roebber
Keyword(s):  
Major League Baseball ◽  
Professional Baseball ◽  
Financial Advisors ◽  
High Stakes ◽  
Time Period ◽  
Major League ◽  
Investment Advice ◽  
Baseball Team ◽  
Player Performance ◽  
Staff Salary

Financial advisors often emphasize asset diversification as a means of limiting losses from investments that perform unexpectedly poorly over a particular time period. One might expect that this perceived wisdom could apply in another high stakes arena–professional baseball–where player salaries comprise a substantial portion of a team’s operational costs, year-to-year player performance is highly variable, and injuries can occur at any time. These attributes are particularly true in the case of the starting pitching staffs of professional baseball teams. Accordingly, this study analyzes starting pitcher performance and financial data from all Major League Baseball teams for the period 1985–2016 to determine whether the standard investment advice is applicable in this context, understanding that the time horizon for success for an investor and a baseball team may be distinct. A multiple logistic regression model of playoff qualification probability, based on realized pitcher performance, measures of luck, and starting pitcher staff salary diversification is used to address this question. A further stratification is conducted to determine whether there are differences in strategy for teams with allocated financial resources that are above or below league average. We find that teams with above average resources increase their post-season qualification probability by focusing their salary funds on a relative few starting pitchers rather than diversifying that investment across the staff. Second, we find that pitcher performance must align with that investment in order for the team to have a high qualification probability. Third, the influence of luck is not negligible, but those teams that allocate more overall funds to their pitching are more resilient to bad luck. Thus, poorly resourced teams, who are generally unable to bid for pitchers at the highest salary levels, must adopt alternative strategies to maintain their competitiveness.

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