Financial advice: Who Exactly Follows It?

• Published in: Research in economics 2021-09, Vol.75 (3), p.244-258
• Main Authors: Reiter-Gavish, Liron, Qadan, Mahmoud, Yagil, Joseph
• Format: Article
• Language: English
• Subjects: Financial advice; Household finance; Investor literacy; Investor sophistication
• ISSN: 1090-9443; 1090-9451
• DOI: 10.1016/j.rie.2021.06.003

•Data about 290,000 household investment accounts are used.•Trading experience and occupational complexity negatively correlate with utilizing financial advice.•Women, married couples and older investors are more likely to use financial advice.•Being older and widowed dramatically reduce the gender-based impact on the tendency to use advice.•Economic uncertainty negatively correlates with utilizing financial advice. Using data from about 290,000 household investment accounts, we provide a comprehensive analysis of the role of personal economic and demographic characteristics in determining the tendency to utilize financial advice. Our findings indicate that investors' sophistication level, captured using several proxies, is negatively correlated with the decision to follow the financial advice received. In addition, we find that individual differences such as age, gender and family status are strongly associated with the tendency to use the advice. The findings are robust under different distributions of the data. Finally, we also test how macroeconomic uncertainty affects the tendency to utilize financial advice. Our results demonstrate that higher levels of financial uncertainty are associated with less use of financial advice.