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Vox EU has an interesting article on the question here: http://www.voxeu.org/index.php?q=node/4014

In the end, the conclusion should not be that surprising to people in this forum. One thing that surprised me, that is not necessarily alluded to in the blog posting, is tangential notion that the raison d'être for financial advisors is not to raise portfolio performance, but to aid in the management of the portfolios of wealthy individuals. I wonder, do wealthy investors with full service brokers or discretionary managed accounts sleep any better than Joe Schmoe who manages his own discount brokerage account?
 

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When my mom retired due to a brain tumor she cashed out her pension and put it with a well respected financial firm. My dad felt that under the circumstances they did not have the time to manage their money.

One year later they removed their money from the well respected management company after losing 25% of their assets.

Since then they have done very well and recovered all their losses on their own.
 

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this is an interesting topic. It was a "large German broker" that sponsored the voxeu.org academic study. Here in north America one would think that large financial houses with both strong full-service and strong online discount services would be keenly interested in similar studies. One would suppose that such large mixed houses would crucially need these studies for their long-term strategic planning.

yet i have never heard of the TD, for example, or RY or BMO sponsoring such studies. In fact i've never heard of such studies anywhere in academia, let alone sponsored by a big financial house.

in the absence of objective, published studies and surveys, we're left with nothing but anecdotes. Everything from the DIY investor who claims to do better than the broad market indices to the managed client who roams from advisor to advisor every time a major market turndown occurs.

hint: maybe the professional journalists on this forum could ferret out some of the profs who worked on those academic studies that the big discount-owning banks must have surely commissioned, even though they are keeping their mouths strictly shut about the findings.

in the meantime, my grassroots guesses would be that 1) the median performance of the self-directed online crowd compares well to that of managed accounts, and 2) a main function of wealth managers is to add a veneer of reliability and respectability, so that their clients can indeed sleep better at night, as Robillard suggests.

and here's my closing anecdote, about what the regional manager of an exclusive boutique investment house said when a scandal blew up over the conduct of one of his licensed dealers who was churning accounts severely, although he wasn't madoffing them. With a faintly-acid expression on his face, the manager explained that "the very rich are funny about their money ... they don't mind how much they lose, as long as they think it's being looked after by the right people."
 

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Don't the results of this research just come done to the attributes of the clients - not the attributes of advisors.

1) The fact is that young kids never see risk in any situation. It is always young (almost always) guys who show up on these forums wanting to trade stocks without fundamental analysis. They don't see the need for help or knowledge and probably reject any advice given by an advisor. That is just the way the young are.

2) The other explaining fact is that older people grew up in an era where defined benefit pensions took care of most people. They have no knowledge of risk taking because they never had to. Certainly NONE of the over-70 people I know (and I know quite a number) manage their own portfolios, or know anything about it. They ALL live off some kind of outside benefits stream.

So they will be more more amenable to advice. And that advice will move them from lower return, safe investments to higher return, riskier investments.

As an aside. I have viewing access to three trust funds that are managed by no-name employees of big-bank trust divisions. All three have beaten the index total-return from Jan 08 by different degrees. They are all 100% equities, and none use ETFs - just solid blue-chip Cdn companies - not all dividend paying. Their beneficiaries have been well-served through this time. Of course these people had no ability to CHOOSE to have an advisor.
 
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