Public Concern About Immigration and Customer Complaints Against Minority Financial Advisors

We examine the relation between public concern about immigration and customer complaints against minority financial advisors in the United States. We find that minority advisors are more likely to receive complaints in periods of high public concern about immigration than in other periods, relative to their white colleagues from the same firm, at the same office location, and at the same point in time. This result holds for both complaints with merit and dismissed complaints and is more pronounced in counties where residents likely hold stronger anti-immigration views. We also find that minority advisors are more likely to face regulatory actions or leave their firms after customer allegations in periods of high public concern about immigration than in other periods. Overall, our study provides descriptive evidence of a positive relation between public concern about immigration and customer dissatisfaction with minority advisors. This paper was accepted by Suraj Srinivasan, accounting.

Money as a symbol in the relationship between financial advisors and their clients: a dyadic study

PurposeThe paper aims to examine whether financial advisors can understand the symbols and meaning that investors associate with money and whether such ability plays any role in enhancing the advisor-investor relationship in terms of satisfaction, level of trust, referral propensity and loyalty.Design/methodology/approach The authors used a dyadic research design. A total of 186 dyads of financial advisors and their clients took part in the study and completed two parallel self-administered questionnaires.Findings The authors found that financial advisors often can detect the emotional associations that their clients attribute to money. Such ability can enhance their relationship with investors.Research limitations/implicationsThe main limitation of this study is its exploratory nature and the convenience sampling technique that was adopted. Therefore, researchers are encouraged to test the main findings further.Practical implicationsThe results have implications for the development of ad-hoc psychological training to enhance the relationship between financial advisors and investors. Understanding the symbolic meanings and the emotions that clients associate with money may be a prerequisite for a financial services company to succeed and be competitive in the sector.Originality/valueDespite acknowledging that money is not a neutral object but is layered with symbolic meanings and emotional associations, the behavioral finance literature has so far neglected to study these implications from either a theoretical or a practical point of view. This paper aims to fill this gap by investigating the symbolic value of money in the financial services industry.

Households' intentions under financial vulnerability conditions: is it likely for the COVID-19 pandemic to leave a permanent scar?

PurposeThe authors draw on psychological reactance theory, collective mental programming, psychological profiles and financial vulnerability experiences to assess the possibility that the pandemic may induce transformative changes in households' behavioral intentions related to financial decisions after the pandemic is over.Design/methodology/approachUsing a unique survey data drawn from four different countries located in North America, Europe, Africa and Latin America, the authors show that the stressful conditions that accompanied the pandemic have instigated a state of financial vulnerability and stimulated instinctual defensive mechanisms among consumers.FindingsThe study results indicate that households have intentions to make defensive decisions in spending, consumption, planning and investment. Furthermore, the authors report evidence that personal psychological heterogeneity (as an individual factor) and collective mental programming (as a cultural factor) play a significant role in shaping households' postpandemic financial intentions.Research limitations/implicationsThe study findings carry important practical implications. For financial institutions, marketers and financial advisors, the authors’ work implies that individual and collective factors affect people's perception and behavioral intentions in response to financial adversities. For social planners and legislators, the authors’ work shows that they should expect not only short-term but also long-term reactions to the COVID-19 pandemic.Originality/valueMost research on the impact of COVID-19 pandemic on households' financial behavior focuses on transitional adjustments made during the pandemic, and little emphasis has been placed on potential postpandemic adjustments. The authors contend that it would be a mistake to analyze the pandemic-induced crisis as a temporary financial hardship.

Retail Investors’ Financial Risk Tolerance and Risk-taking Behaviour: The Role of Psychological Factors

The aim of this article is to look at how two psychological factors affect financial risk tolerance (FRT) and financial risk-taking behaviour (FRB) of individual investors. The study also investigates the role of FRT in mediating the relationship between psychological factors and FRB. A standardized questionnaire was used to collect the information. For the study, a total of 303 completed questionnaires were used. The proposed research model was validated and assessed using partial least squares structural equation modelling. The findings revealed some important experiences. Emotional intelligence and impulsiveness have a significant relationship with both FRT and FRB, according to the results. The findings also support FRT’s position as a mediating factor in the proposed research model. The results emphasize the importance of psychological factors in determining an individual’s FRT and FRB. FRT is a complex mechanism that entails more than just psychological considerations. As a result, further research is needed to decide which additional factors financial advisors can use to increase the explained variance in FRT inequalities.

The Smart Money is in Cash? Financial Literacy and Liquid Savings Among U.S. Families

Most financial advisors recommend storing three to six months of expenses in liquid assets in case of an emergency. Yet we estimate that more than half of U.S. families do not have at least three months of their non-discretionary expenses in liquid savings. We find that financial literacy is strongly predictive of having three months of liquid savings, controlling for income, income variability, and even parental resources. We also find that financial literacy predicts liquid savings across the income distribution. These results indicate that accumulation of an emergency fund is not simply a function of income. Finally, financial literacy is predictive of liquid savings even among high illiquid wealth households. This suggests that the phenomenon of "wealthy hand-to-mouth" families may reflect financial mistakes rather than portfolio optimization. Our paper highlights the importance of financial knowledge in explaining families' preparedness to deal with unexpected expenses or disruption in their income.

Personalized Robo-Advising: Enhancing Investment Through Client Interaction

Automated investment managers, or robo-advisors, have emerged as an alternative to traditional financial advisors. The viability of robo-advisors crucially depends on their ability to offer personalized financial advice. We introduce a novel framework in which a robo-advisor interacts with a client to solve an adaptive mean-variance portfolio optimization problem. The risk-return tradeoff adapts to the client’s risk profile, which depends on idiosyncratic characteristics, market returns, and economic conditions. We show that the optimal investment strategy includes both myopic and intertemporal hedging terms that reflect the dynamic risk profile of the client. We characterize the optimal portfolio personalization via a tradeoff faced by the robo-advisor between receiving information from the client in a timely manner and mitigating behavioral biases in the communicated risk profile. We argue that the optimal portfolio’s Sharpe ratio and return distribution improve if the robo-advisor counters the client’s tendency to reduce market exposure during economic contractions when the market risk-return tradeoff is more favorable. This paper was accepted by David Simchi-Levi, stochastic models and simulation.