The value of financial advice
New research on financial advice was presented on a seminar by CBS – Copenhagen Business School in March. Two new German research reports deal with the likelihood of advisees following the advice given, focusing on key issues such as financial literacy, trust and social proximity.
One of the studies showed that households’ likeliness to follow standardised financial advice, when the risk of mis-selling is minimized, is very low. Low financial literacy tends to make advisees less keen to follow financial advice. This seems to be case for most households except the wealthiest ones that can have access to several sources of financial advice regardless of their level of financial literacy.
The study also showed that higher financial literacy tends to increase confidence among consumers and make them trust their own judgment. This group tends to use the financial advice as just one source available when processing their financial decisions. Find the report here.
What is clear from research on financial advice is that trust within the advisor-advisee relationship is key. The second new German study shows that age, gender and social status play a very important role in the trust relationship between an advisor and advisee. The likelihood of following financial advice increases when the advisor and advisee are like one-another. For male consumers, the most important tend to be gender and age, meaning that they are more likely to trust and follow the advice given if the advisor also is male and in the same age as the consumer. For female clients, a similar social status of their advisor is the most important factor to increase trust and increase the likelihood of following the advice given. Find the research report here.