• DOI:10.1093/RFS/HHY046
• Corpus ID: 31404638

Financial advice and bank profits

@article{Hoechle2018FinancialAA,
  title={Financial advice and bank profits},
  author={Daniel Hoechle and Stefan Ruenzi and Nic Schaub and Markus Schmid},
  journal={Review of Financial Studies},
  year={2018},
  volume={31},
  pages={4447-4492}
}

• Daniel Hoechle, S. Ruenzi, +1 author Markus Schmid
• Published 1 November 2018
• Economics
• Review of Financial Studies

We use a unique data set from a large retail bank containing internal managerial accounting data on revenues and costs per client to analyze how banks and their financial advisors generate profits with customers. We find that advised transactions are associated with higher profits than independently executed trades of the same client. The bank’s own mutual funds and structured products are most profitable for the bank, and profits increase with trade size. We show that advisors recommend exactly those transactions. Furthermore, we find that advised clients achieve a worse performance than independent clients, suggesting that advisors put their employer’s interest first.Received April 21, 2016; editorial decision January 24, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.