Financial Advisors and Investors' Bias

Abstract

We study an intervention by a brokerage firm providing advisory services to high-net-worth investors. In 2018, the firm changed the information displayed on its internal platform, so that financial advisors could no longer observe which clients’ holdings were in paper gain or loss. Using data on portfolio stock transactions between 2016 and 2021, we show that, while all investors exhibit a significant disposition effect before 2018, i.e., a greater propensity to realize gains than losses, highly-advised investors see their bias significantly reduced afterward. Our paper shows that by appropriately manipulating advisors’ information, financial firms can successfully reduce their clients’ biases.