Use of financial planners and portfolio performance

Abstract

Using modern information economics as the conceptual framework and data from the 2013 Survey of Consumer Finances, this study adopts a decomposition technique to explore the relationship between the primary information source used by U.S. investors and their household investment portfolio performance. The sample includes households with investable assets and those whose primary information source is financial planner or self-directed sources. Households that received large amounts of inheritance or gifts within the past year are excluded from this study due to the necessity of additional planning and the associated time commitment to accomplish it. The findings reveal that investors who consult with financial planners have a higher probability of achieving better household investment portfolio performance than self-directed investors. Results also show that household income and investor's gender mediated the effect of information source on investment portfolio performance. This study is one of the first to provide empirical evidence of a positive relationship between the service that U.S. financial planners provide and their clients' financial outcome.